Republicans and Democrats cite same Federal Reserve data in high-stakes debate over payday lenders
Payday lenders are once again under the microscope on Capitol Hill. Republican and Democratic lawmakers use the same data from the U.S. Federal Reserve to make their case.
Republican and Democratic lawmakers use the same data from the U.S. Federal Reserve to present opposing cases.
The Consumer Financial Protection Bureau wants to reconsider an Obama-era rule designed to prevent payday lenders from preying on vulnerable consumers. The Obama-era rule – implemented under former CFPB director Richard Cordray in 2017 – imposed stricter conditions on short-term lending companies, requiring them to assess the creditworthiness of borrowers.
The government agency has said it wants to reverse the trend because it says rules have blocked access to credit for people who need it most. Republican lawmakers want to ease some of the restrictions on these lenders who Democrats say have punitive, and sometimes astronomical, interest rates.
Representative Gregory Meeks, a Democrat from New York, said he was “deeply disappointing” by the CFPB’s decision to repeal the Obama-era rule. He chairs the sub-committee on consumer protection and financial institutions within the financial services committee. “It is difficult to see how the actions of the office under the leadership of Mr. Trump’s management team fulfill its primary mission of putting consumers first,” he said.
Meeks cited statistics such as the U.S. Federal Reserve’s findings that four in ten adults couldn’t handle an unexpected $ 400 expense without borrowing or selling something. And his opponent too.
The CFPB is now headed by Kathy Kraninger, who previously worked in the White House under President Trump.
Rep. Blaine Luetkemeyer of Missouri, the subcommittee’s ranking Republican, relied on the same Federal Reserve data on that $ 400 expense – but this time to argue the other side of the coin. Consumers certainly needed protections, he said. “However, regulations that limit choice and stifle access to credit have no place in our economy.” People who can’t afford emergency expenses often need quick and easy loans, he said, and the industry has been tainted by a few bad actors.
Former agency director Richard Cordray has aggressively lashed out at companies mistreating consumers. The CFPB is now headed by Kathy Kraninger, who worked in the White House Office of Management and Budget in the Trump administration. Kraninger said the bureau should play on financial literacy and empower “consumers to help themselves protect their own interests.”
Critics say such a withdrawal would be a devastating about-face and a bad image for an agency that is supposed to defend the best interests of vulnerable consumers. A 2016 study found that payday loan interest rates can reach an astronomical rate of 662%. Members of the public have a May 15 deadline to comment on a proposal to rescind the Obama-era rules on payday lenders.
So far, there have been 8,000 comments on the proposal.