New Orleans I was sitting next to an organizer from British Columbia while reading the reports on the new set of regulations being proposed by the Consumer Financial Protection Bureau on payday lending. We have fought payday lenders in Canada for over a decade and we’re batting over .500, but a long way from a perfect score with our biggest victory having been to get enough federal support to devolve the regulations to the provinces, where we have won significant protections in some areas and nothing in others. In the patchwork quilt of little to a lot of regulations on payday lenders in the United States, we have been pushing for the CFPB to hit a home run, not a scratch single. We got a hit, but it seems way more “bureau” than it feels like “financial protection.”
Almost by definition payday lending is a product that seems to invite predatory corporate behavior, because these are loans that low and moderate income families are taking because they are so desperate for cash for whatever the reason, and studies show most frequently the reason is simply that there is “more month than money,” that they are willing to allow the company to take a big bite of their check with interest before it gets in their hands where they urgently need it. Interest rates go through the roof and studies ACORN Canada has done and analysis that the CFPB has done indicate that payday lending is the crack of contemporary finance. Once you have one, you keep going back month after month, usually 10 times over a 12 month period, to get more loans to pay the old loans, and on and on and on.
There are real steps forward in the CFPB proposal. The movement to make “affordability” the litmus test for a loan and cap the levels of repayment amounts is one breakthrough, and my Canadian colleague gave that oohs and aahs. The other step forward is the recognition that we need federal regulation, because not only does the patchwork quilt victimize families, but the access to these products through the internet makes a mockery of many of the better state regulations. That’s also a step ahead of Canada.
The CFPB offers options though, which I find weird for federal regulations, particularly ones that have evolved over an extensive time period and after a survey of millions of loans. What, they couldn’t decide what protection really was? Are you kidding, they want the predatory lenders themselves to decide how they are going to fleece the consumer? For a young government agency, this seems like a bureaucratic stranglehold more than a breakthrough. Furthermore the other option limits lenders on the number of loans per year with some restrictions, but given the lack of love the Republican Congress already has for the CFPB, you just know that they will never have the enforcement capability to monitor this well.
This isn’t over yet. The rules aren’t final. There will be more comments and a lot more lobbying, but it’s still disappointing.
Often, when I visit my mother late in the afternoon, she and anyone around would be watching the television show, Jeopardy. Once when I was dropping stuff by, they had a week of former great champions competing against each other. To my surprise there was Richard Cordray, the CFPB’s director, as one of the contestants. He didn’t do all that well. I worry that he may have forgotten one of the cardinal rules of that game. When the bell rings that it’s “double jeopardy,” the contestants have an opportunity to double-down, especially if they are behind, and bet everything that they will get the answer right and win. Cordray needs to go for broke here and win, not just try to have a little prize to take home when the game is over.