- The Washington Times - Wednesday, July 11, 2012

A group of bipartisan lawmakers are pushing a plan to exempt pawnshops, payday lenders, check-cashing stores and installment lenders from oversight by President Obama’s new consumer finance watchdog agency, saying the oversight could restrict credit and economic opportunities for lower-income and inner-city customers.

But the Consumer Federation of America and other advocacy groups say the move runs the risk of undercutting a key power of the new Consumer Finance Protection Board (CFPB), while leaving vulnerable borrowers prey to risky, high-interest loans that leave families and small business high, dry and deeper in debt.

The bill, sponsored by Rep. Joe Baca, California Democrat, and lawmakers from more than a dozen states, would establish a new federal charter for non-bank lenders that would not only bypass the CFPB but also effectively block many state-level consumer protection laws.

Mr. Obama’s 2010 financial regulatory overhaul gave the new consumer financial agency broad powers to oversee both bank and non-bank lenders. A number of states already regulate “quick loans” with rules on interest rate caps, loan limitations and disclosure forms.


But Mr. Baca and other bill sponsors say their proposal is meant to establish a “vibrant, safe, and commercially viable market for underbanked and unbanked individuals to gain access to financial services and products.”

The Federal Deposit Insurance Corporation estimates that more than 60 million low- and moderate-income consumers in America have little or no access to traditional commercial banks. The rates are even higher for blacks, Hispanics and other minority groups.

Prominent consumer rights groups, including the Center for Responsible Lending and the Consumer Federation of America, have come out against the bill. The Office of the Comptroller of the Currency, which would issue the new non-bank charter under Mr. Baca’s bill, does not have the same primary mandate to protect consumer interests, they argued.

“This shift exposes consumers and the financial services marketplace to the very dangers that contributed to the economic crisis,” the letter said. “The CFPB was created for the sole purpose of protecting consumers through oversight, rule making and enforcement of the rules for the very consumer financial products marketed and sold by the companies covered in this legislation.”

But Mr. Baca denied the effect of his bill would be to undercut consumer protections.

“There is absolutely nothing in [the bill] that would give the new charter holder any better status than banks, or in any way limit the CFPB’s status as an independent consumer advocate with the ability to enforce consumer protection regulations on financial products and services,” he said in a statement.

He said the bill would also provide uniform access to non-bank services for consumers, “rather than the current 50-state patchwork of laws that allows some consumers more choices than others.”

Ted Saunders, CEO of Community Choice Financial, which operates over 430 check-cashing retail outlets, said the CFPB should be focused on totally unregulated firm, instead of burdening those who already follow the law.

“The vast majority of consumers using our products understand them and use them responsibly,” Mr. Saunders said. “They know that payday loans compare favorably to bank overdrafts, bounced checks, credit card advances and deposit advance programs offered by banks and credit unions.”