When Congress passed the Dodd-Frank Wall Street regulation bill, they created an economic Frankenstein monster.
They sold the bill as a way to help consumers by creating an independent federal agency to place regulations on the marketplace. That agency, the Consumer Financial Protection Bureau (CFPB), has morphed into a monstrosity, staking and harming the people it was intended to help.
Designed deliberately to be shielded from the democratic process the bureau was placed beyond the reach of congressional oversight. Critics warned that would give bureaucrats unmitigated and unprecedented power to create government red tape with little recourse or ability to reign in overreach and abuse.
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Recent efforts by CFPB bureaucrats to destroy the short-term lending industry are proving critics correct. The CFPB is promulgating on a rule that will place so many regulatory burdens on the small dollar loan industry that most companies will simply close shop. The regulations make no sense in a world where you should be able log onto a computer and secure a couple hundred dollars in a few minutes. The new rules would make the securing of these small dollar loans resemble the paperwork and background checks required for million dollar mortgages.
The federal government says that 20 percent of American households are "underbanked." More than 40 million Americans don't even have a credit score. They may have a savings account or even a checking account but could never qualify for a loan or mortgage from a traditional bank. That has given rise to the short-term lending industry, often called "payday" lenders. The purpose of these lenders is to provide short-term liquidity, even for a week or two, to help consumers fill a pressing need such as an unexpected car repair or medical bill.
In a stunning display of arrogance, the CFPB has proposed new regulations eliminating the middle class' ability to obtain short-term credit. This action will not help anybody except the local loan shark.
Even though the short-term lending industry is regulated on the state level, it has become the enemy of liberal activists.
The Center for Responsible Lending (CRL), a group financed by vested interests in the lending industry, including big banks and subprime lenders, has lead the fight to decimate the industry. It is no coincidence that CRL is connected to the Self-Help Credit Union, which offers its own version of a payday loan. They are seeking to gain greater access to the short-term lending industry and they are using the power of government, the CFPB to do their dirty work.
The CFPB's proposed new rules and regulations would devastate thousands of small business owners and those who rely on them. The Bureau predicts the new rule would eliminate 60 percent to 80 percent of the small dollar lending market leaving millions of poor and middle class Americans with little or no access to credit. This proposal is nothing short of an extension of the Department of Justice's "Operation Chokepoint," which denied banking services to companies the Obama administration deemed legal but immoral. Congress has oversight authority of the DOJ, but not the CFPB. The CFPB is housed at the Federal Reserve and is not even subject to the congressional appropriations process.
Some members of Congress, however, recognize the dangers of a bureaucrat with the power to devastate an industry whole cloth without any democratic oversight. Rep. Blaine Luetkemeyer (R-Miss.) has introduced the “Financial Institution Consumer Protection Act of 2015” to ensure the federal government cannot institute a backdoor version of Operation Chokepoint.
The Chairman of the House Financial Services Committee Rep. Jeb Henserling (R-Texas) is a committed supporter of limited government and competition. He should hold hearings to study the actions of the CFPB. Maybe transparency is one way to reign in this out of control government agency. Subjecting the agency to congressional appropriations and oversight is another fix.
Should the CFPB succeed in denying credit access to the poor and working class, the only people who would benefit would be the cronies at the Self-Help Credit Union and the loan sharks that prowl the streets in our inner cities.
Like the Frankenstein monster of Mary Shelley’s novels, the CFPB is out of control. It is killing jobs and reeking havoc on a sector of the economy that many middle class people need in a pinch. In Shelley’s book, the Frankenstein faced an ugly end and the same may be in store for the CFPB unless if they act more reasonable and to protect people in dire need of access to these loan products.
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