- The Washington Times - Wednesday, July 29, 2015

Florida’s congressional Democrats are rebelling against the new financial oversight agency championed by President Obama and liberal icon Elizabeth Warren, slamming its proposed payday lenders rules as a bad example of a “one-size-fits-all policy” that will limit consumers’ banking choices.

Among those joining the fight are Rep. Debbie Wasserman Schultz, Mr. Obama’s handpicked chairwoman of the Democratic National Committee, and Reps. Alcee L. Hastings and Corrine Brown, the two longest-serving Florida Democrats in Congress.

At issue are new payday lender rules proposed this spring by the Consumer Financial Protection Bureau, the government’s newest federal regulator created by the 2010 Dodd-Frank Act, that take aim at an industry frequently used for banking services by minorities, the poor and the elderly.

Mr. Obama and Ms. Warren have both targeted the payday lending industry for increased oversight, accusing it of engaging in predatory lending practices.

But Florida’s entire Democratic congressional delegation joined their Republican counterparts in sending a letter in recent days to CFPB pleading for the agency to adapt the rules to take into account actions Florida has already taken to reform the payday lending industry.

They urged the agency’s current chief, Richard Cordray, to use the state as its model for drafting rules instead of taking a heavy hand in regulation that ignores Florida’s progress.

“To ignore our experience, which has proven to encourage lending practices that are fair and transparent without restricting credit options, would do an immeasurable disservice to our constituents, many of whom rely on the availability of short-term and small dollar loans from regulated, licensed non-bank lenders to make ends [meet],” the April 28 letter stated.

It was followed by a separate letter from Florida’s Office of Financial Regulation to Mr. Cordray that said it “wholeheartedly agrees” with the delegation’s arguments.

The CFPB is deliberating on a controversial rule-making process that has sparked a heated debate among lawmakers and those within the payday industry about whether the proposed regulations will choke off lending to low-income borrowers in need — and if that’s a good thing.

More than 33 million households lack sufficient access to traditional banking services, according to the Federal Deposit Insurance Corporation. This is mainly because banks — due to their compliance regulations — don’t issue loans to people with a high credit risk after evaluating their credit history.

The result is high-risk pools of people going to payday lenders, which assume everyone has a 100 percent chance of default and charges high interest rates to make up for it.

“I’m under no illusion that payday lenders are saints or the best industry in the world. I would advise consumers against taking out payday loans if they can avoid them,” said Joe Colangelo, the executive director of Consumers’ Research, an independent think tank. “There’s this well-intentioned desire to fix something that’s not fair, but by making it more difficult to access credit, you’re not fixing the problem, you’re just preventing people access to another avenue of credit. You’re pushing them toward the guys on the streets who will break their knees if they aren’t going to pay.”

Those against the CFPB's payday regulations claim the agency’s targeting of the industry is politically motivated and not warranted if it were to consider consumer demand and satisfaction.

Last year, a survey from the Federal Reserve found two-thirds of Americans making less than $40,000 annually would have to sell something or borrow money to pay for a $400 emergency expense, making payday lending an attractive option.

Moreover, a study by George Washington University found 54 percent of payday borrowers were “very satisfied” with the service, as compared to 5.7 percent who were “very dissatisfied.” And Consumers’ Research showed payday lenders accounted for .06 percent of the consumer complaints filed to the CFPB in 2011.

The 25-member Consumer Advisory Board, which decides what industries the CFPB will target, includes former Acorn activists, members of left-leaning think tanks like the Urban Institute and even a member of the DNC.

Only after deciding to federally regulate payday lenders did the CFPB invite a representative from the Community Financial Services Association (CFSA), the national organization for small-dollar, short-term lending or payday advances, to sit on the board.

“We were brought onto the board only after being specifically told they had ended their consideration of payday lending,” said Dennis Shaul, the CEO of CFSA and a former senior adviser to retired House Committee on Financial Services Chairman Barney Frank. “The members of that board include perennial critics of small-dollar lending — they do without question [espouse] a liberal to left-leaning philosophy that believes customers, despite every notice that’s given to them, are not mentally equipped to make their own choices about credit.”

In CFPB's proposed payday rules, which were introduced in March, the agency aims to end what it calls “payday debt traps” by limiting the interest rates lenders can charge, prohibiting borrowers from taking out more than one loan at a time, and by requiring lenders to assess the borrowers’ ability to pay.

CFPB spokesman Sam Gilford on Wednesday defended the agency’s efforts, saying officials will be sensitive to the needs of poorer Americans who might need nontraditional banking services.

“The CFPB recognizes that there is a real demand among consumers for credit, including payday loans and other loans covered by the proposals under consideration. As part of the rule-making process, the bureau will analyze the likely impact of the proposals on consumers’ access to credit and will attempt to address consumer harms in the market while preserving access to affordable credit,” he told The Washington Times.

“This rule-making does not impact other common sources of emergency credit, including typical pawn loans, credit cards and lower-cost signature loans, including those often offered by banks and credit unions. Although we recognize the demand for the covered loans, the CFPB believes that credit should help, not harm, consumers, and that federal law should prevent lender practices that cause consumers to become stuck in unaffordable long-term debt,” he added.

The CFSA says the new regulations would force up to 70 percent of payday operators out of business and deny credit to millions of low-income people. Currently, about 12 million Americans take out payday loans each year, according to CFPB's own data.

Supporters of the agency’s efforts include nearly three dozen Senate Democrats who also penned a letter to the CFPB this month urging it to adopt “the strongest possible” payday lending rules. They worry the agency doesn’t go far enough to curb industry abuses, arguing borrowers who utilize payday loans will never be able to earn enough money to pay them back.

“The families do not understand the details of how this industry works when they take out that first loan, and they end up getting deeper and deeper into that hole — until it’s a hole they just simply can’t possibly get out of,” said Sen. Jeff Merkley, Oregon Democrat, who organized the letter to the CFPB, in a June 4 press briefing.

Sen. Warren, the backer of the CFPB, signed the letter, which read: “We support the CFPB's initial steps towards releasing a proposed rule and urge you to issue the strongest possible rules to end the damaging effects of predatory lending.”

The Florida House delegation disagrees. It consists of 10 Democrats and 16 Republicans. Florida has adopted careful regulation of payday lenders, which places limits on the amount of the loan, number of loans a person can have outstanding, the length of the loan term, interest rates and the collection process if a loan isn’t repaid.

It does not force payday lenders to run credit checks on individuals applying for the loans — a key element in the CFPB's proposal, which industry experts worry will put payday lenders out of business.

“Eliminating [payday lenders] from the market will almost certainly have the opposite effect of that intended by the CFPB: consumers to turn to more expensive alternatives and/or unlicensed lenders, many of which are out-of-state or offshore and beyond the reach of regulators,” the Florida delegation’s letter reads.

In a June 2 response to the delegation, CFPB Director Richard Cordray rebuffed their concern, saying the intent of the federal agency’s actions would be to coexist with strict state laws and establish a federal floor. Mr. Cordray said he would look at the work done in Florida, but didn’t commit to using the state as a model.

In its rule-making process the CFPB hasn’t consulted with the industry or done a study on what regulations are working in other states — it simply isn’t interested, CFSA’s Mr. Shaul said.

“The bureau has adopted a one-size-fits-all theory on how to regulate it, but has no reference to any other experience — the rule they have proposed exists in no other state anywhere,” said Mr. Shaul. “States, regulators, industry executives — people who have been regulating and running this industry for the last 15 to 20 years — haven’t been much included [in] the discussion at this point, and that’s a shame.”

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