Don't Let the CFPB Shut Off Low-Income Access to Credit
The American economy is, if nothing else, a land of enormous choices, with a multitude of options that would be the envy of any medieval monarch. Abundance in many ways defines America, and is even a source of national pride. In the movie Moscow on the Hudson, a Soviet defector played by Robin Williams experiences a mental breakdown at a grocery store when confronted by the small army of coffee brands staring back at him from the shelves.
Consumer choice is more than a just a luxury or national privilege; it is a moral equation, the sum reward of an ethic that champions victory over human need. As individuals, the power of choice unites us as one of the few things that nobody willingly forfeits, and this includes the social critics who belittle America as a land of empty materialism. Today, even the poorest among us is empowered in the marketplace, with choices on how and where to spend their money. And this emphasizes a striking point central to all debates on economic policy, because how an economic system treats the less fortunate among us is its most potent test.
This test is frequently flunked by government, the all-knowing entity that determines the rules for us all through laws and regulations that operate with a one-size-fits-all widget. In some areas this is preferred, for instance we want uniformity with criminal laws or safety standards. But overwhelmingly government’s interference in the marketplace robs us of choice, and the rules it enacts inevitably make life more difficult for at least some of the people, if not many. Government taking options away from the less affluent is especially poignant, given they start from a position of having fewer choices to begin with.
A case study in this folly began when the Obama Administration and the Richard Cordray-led Consumer Financial Protection Bureau (CFPB) issued a rule that would have the effect of cutting millions of lower-income Americans from access to credit. Dubbed the Payday, Vehicle Title, and Other High-Cost Installment Loans Rule, or the Small-Dollar Loan Rule, its supposed target was “predatory” lenders, but this was a false pretext. Cordray himself admitted the Rule would eliminate 84% of the market, a confession the Rule’s primary and intended effect will be to decimate credit access for those most in need.
As it stands, full implementation of the Rule would eliminate nearly 60,000 jobs across America and lead to the loss of ninety-percent of financial services centers revenue, crippling the industry and the consumers who rely on their services. And according to a study by PEW, this includes more than 12 million people per year.
Economic choices begin with growing income and access to credit, the former over which government has little control, but the latter is an entirely different story. Under the guise of “helping” consumers, this Rule denying access eliminates the choices of lenders seeking borrowers, and – more critically -- borrowers in need of credit.
The issue at hand extends far beyond the typical debate of what entails a reasonable regulation, but raises the paramount question on who gets to choose who has choice; should low-income Americans be denied access to credit by an all-powerful bureaucracy, and if so, by what justification? These are questions the Cordray-led bureaucrats have failed to answer.
Cordray issued this misguided Rule on the eve of his departure under the false premise that payday lenders operate in an unregulated industry, when in fact the industry operates under several extensive laws that address every aspect of a transaction at the state-level. Actually helping consumers further turned out to be the furthest thing from Cordray’s mind at the time, as the CFPB ignored the nearly one million public comments filed with the CFPB against its implementation.
And it won’t be just consumer choices impacted. During a recent House Financial Services Subcommittee hearing, Robert Sherrill, testified on how a small-dollar loan helped him get his life back on track and start a successful business. He further refuted the idea that there are “alternatives” to small-dollar loans, as suggested by some Democrats on the committee. Said Sherrill, “I keep hearing that term [alternative], but I don’t know of any.” It was an education from one who knows schooling those sitting in judgment, the people who will never have a need for this service. Robert Sherrill represents millions of Americans every year who utilize small-dollar loans quite successfully to cover the cost of an emergency, or for a small business expense, the people who are turned away from banks and have no other “alternatives.”
But choice still matters -- in the marketplace, in our chosen profession -- for all Americans across all income levels. Thankfully, President Trump’s pick for CFPB Director, Kathy Kraninger, understands this and is already putting the previously wayward agency on track to recognize this obligation. Kraninger has started by proposing revisions to the Small-Dollar Loan Rule’s ability-to-repay requirements, which will defang its most injurious effects. Choice matters for all Americans, and Ms. Kraninger is making the right one.