Last month, the Consumer Financial Protection Bureau (CFPB) unveiled its proposal to rein in the payday loan industry. The consumer federal watchdog agency revealed that it wants to impose income checks for payday loan businesses, ensure consumers can’t borrow too many loans in a short period of time and pretty much overhaul the payday loan business model, which would please many groups nationwide. 9(http://www.wsj.com/articles/cfpb-to-propose-payday-loan-rule-on-june-2-1463615308)
Soon after the CFPB revealed the proposal, many analysts said that the rules would go into effect as early as next year because the CFPB does not need congressional approval. Is that a correct assessment?
Ostensibly, some members of the House of Representatives disagree and are trying to block the CFPB from implementing its new rules. They feel that Congress needs to oversee it and perhaps help delay it for another year or two to ensure the general public has been fully consulted on the matter.
This week, the members of Congress passed House Resolution 5485 and rejected the Sewell-Waters Amendment in a vote of 239 to 184 and 240 to 182, respectively. Lawmakers, as part of the resolution, would help pause the incorporation of the CFPB’s payday lending rules and shun the Amendment that would have given the CFPB funds to enforce the regulations being suggested.
Financial Service Centers of America (FiSCA), the national trade association representing 5,000-member financial service center locations around the United States, published a press release on Friday thanking and congratulating Congress for taking this bipartisan measure to protect vulnerable consumers.
According to the group, millions of consumers can maintain their access to this type of credit. Congress, the organization noted, helped ensure unsecured personal loans would stay around, which often become “lifesaving lines of credit” for “hard-working Americans.”
“Members of the US House of Representatives, and Chairman Crenshaw in particular, are to be commended for standing up for millions of working middle-class consumers in Florida and across the Nation,” said Ed D’Alessio, FiSCA’s Executive Director, in a statement.
“CFPB has ignored the facts, and rushed an ill-conceived and highly political rule-making process with devastating consequences to our customers – the very consumers CFPB is mandated by law to ensure have both appropriate protection and continued access to credit. CFPB has ignored the pleas of states, consumers who depend on short term credit, small businesses which provide state and federally regulated short term credit, and our Nations’ insured depositories.”
It warned, however, that should the CFPB’s proposed rules and restrictions become the federal law of the land then it would limit “legal credit options for millions of Americans.” Moreover, it would give the federal government power over the states.
“By proceeding with these overly prescriptive rules, the CFPB is directly ignoring the wide-ranging and serious concerns of lawmakers, stakeholders in the financial services industry and the ordinary Americans who use these services every day,” the trade body said. “We stand with the House of Representatives in stopping the implementation of this discriminatory and economically devastating rule.”
Critics of the payday loan industry often argue that lenders of high-interest, small-dollar loans send the impecunious into endless spirals of debt and ruin more lives than they help. Proponents of the business sector present the case that this alternative form of credit is necessary to ensure consumers can pay their rent, cover their utility bills and even put food on the table.
The matter of payday loans have become a hot button issue for states across the country. Eighteen states have prohibited the financial product. President Obama has made it an important issue for the CFPB a couple of years after being elected.