CAGW Submits Comments to Bureau of Consumer Financial Protection on Payday Lending Rule | Citizens Against Government Waste

CAGW Submits Comments to Bureau of Consumer Financial Protection on Payday Lending Rule

May 14, 2019

The Honorable Kathy Kraninger
Director
Bureau of Consumer Financial Protection
1700 G Street, NW
Washington, D.C., 20552

Dear Director Kraninger:

On behalf of the more than one million members and supporters of Citizens Against Government Waste, I urge you to direct the Bureau of Consumer Financial Protection (Bureau) to rescind the portion of your rule governing Payday, Vehicle Title and certain High-Cost Installment Loans, finalized in 2017 by then-director Richard Cordray, that requires lenders to determine a borrower’s ability to repay before extending credit (Docket No. CFPB-2019-0006).

The Bureau is statutorily authorized to exercise its authorities under federal consumer financial law for the purposes of ensuring “unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens,” and that “markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation” [See 12 USC § 5511(b)(3) and (b)(5)].

Payday loans are by their nature high-cost, small-dollar loans to low-income, low-credit borrowers with short-term tracking of a borrower’s pay cycle and a repayment system.  Under the payday loan rules as adopted, the bureau deems it an “unfair” and “abusive” practice to make payday loans without determining a borrower’s ability to repay (ATR).  This essentially creates a ban on consumer choice and access to credit through payday loans.  As a result, borrowers will be forced to use more harmful alternatives, like unregulated lenders or loan sharks, when they need unanticipated or emergency credit.

Before Dodd-Frank, regulators applied neoclassical economics theory to identify “unfair” practices harming consumers.  Neoclassical economics treats consumers as rational actors who use existing information on which to base rational decision-making.  This application protected a consumer’s sovereignty while targeting practices that impeded a consumer’s ability to make informed choices such as fraud, breach of contract, or unauthorized billing.  In promulgating ATR requirements, regulators signaled that consumers are not rational actors.  The current compliance date of the rule is August 19, 2019.  If this provision is allowed to take effect, it would have the harmful effect of encouraging new models for consumer decision-making.

A decision by the Bureau to rescind the ATR portion of the payday loan rule would preserve consumer choice and allow consumers, not Washington bureaucrats, to decide how they can access credit.

Sincerely,

Thomas A. Schatz

Issues Topics: 

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