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Category Archive: Markets and Regulations

1. CFPB Finally Moves to Reconsider Payday Rule

   June 26, 2018 9:30 pm Leave a Comment

   The Consumer Financial Protection Bureau (CFPB) recently supported a motion for reconsideration of the “payday rule,” putting one of Richard Cordray’s most onerous mandates on the chopping block. Mick Mulvaney’s CFPB described the rule as “arbitrary and capricious.”

   They’re right to reconsider it. The “payday rule” would impose burdensome regulations on short-term lenders and make it more difficult for low-income Americans to secure credit on short notice. The mandate would require payday lenders to verify a borrower’s income, major financial obligations, loan history, and other information before providing cash, slowing down the transaction process and reducing the number of loans issued.

   For years, Cordray’s CFPB misled consumers about payday interest rates to undermine the short-term loan industry. A two-week payday loan of $100 generally carries a $15 finance fee, which makes sense given that payday borrowers often bring riskier credit histories to the table. The quick turnaround of payday loans also explains the $15 fee, but the CFPB long equated it to “an annual percentage rate (APR) of almost 400 percent.” This, according to Cordray and other liberals, leaves borrowers in a vicious “debt trap.”

   Which also isn’t true. A 2009 study from Clemson University found that an increase in the payday lending does not lead to a higher rate of bankruptcy.

   Restricting access to credit is the wrong way to go. Nearly 60 percent of Americans can’t cover a $500 unexpected expense. Mulvaney’s CFPB is right to stick up for them.

2. CFPB Moves Forward with Another Costly Rule

   July 12, 2017 1:40 pm Leave a Comment

   The latest out of Washington is that the Consumer Financial Protection Bureau (CFPB) has come close to finalizing yet another burdensome mandate. In the next two or three months, the CFPB is expected to issue its final arbitration ban, limiting the use of class-action waivers.

   What does that mean? The proposed rule would bar financial institutions from using arbitration agreements that prevent consumers from filing or joining class action lawsuits in court. The proposal encompasses credit card companies, traditional banks, and different types of lenders, which are disproportionately prone to costly class actions. It could open the door to widespread class-action litigation risk for almost all consumer finance companies that currently utilize arbitration language in contracts with customers, leaving these companies vulnerable to significant legal fees and damages—justified or not. In the CFPB’s own words, “hundreds of millions of dollars” are at stake.

   While Congress is expected to override the rule, it still goes to show the outsized influence of the CFPB’s unelected bureaucrats.

3. Annual Report Exposes CFPB Excess

   January 17, 2017 7:51 pm Leave a Comment

   If 2016 is any indication, the Consumer Financial Protection Bureau (CFPB) shows no signs of slowing down.

   According to the CFPB’s FY 2016 financial report, the agency has an operating budget of more than $647 million ($1.2 billion in total resources)—a 15 percent increase from 2015. In 2016, $290,340,472 was spent on personnel compensation and benefits (including to former employees). An additional $18,304,826 was spent on travel and transportation of persons—more than $11,107 per employee in one year! In other words, almost half of the CFPB’s operating budget is used for personnel compensation and associated costs.

   Or think of it this way: In 2010, the CFPB had 58 employees. In 2016, the number was 1,648 employees—a 2,741 percent increase in less than a decade!

   This takes a toll on the U.S. economy. The CFPB has collected $524,280,000 in civil penalties from companies and financial institutions through September 2016. It has allocated $320,816,713 of that money to victim compensation, but the rest has been used on consumer education and financial literacy ($28,812,809) and “administrative set-aside” ($4,573,322). Yet the agency has financed only one consumer education/financial literacy program through its Civil Penalty Fund to date: Financial coaching, whereby the CFPB plants “financial coaches” at nonprofits and other organizations around the country. (See the full list of participating organizations here.) One of the participants? The Mississippi Center for Justice, a left-wing advocacy group notoriously critical of the payday loan industry.

   Even worse, the $29 million financial coaching budget only goes toward 60 CFPB-funded coaches around the country. That’s roughly $480,000 per coach! The CFPB is yet to release any performance metrics related to the program.

   Here’s to a more responsible 2017.

4. CFPB Comes After Free Speech Next

   October 31, 2016 9:00 am Leave a Comment

   It’s been a rough month for the Consumer Financial Protection Bureau (CFPB). In early October, the U.S. Court of Appeals for the District of Columbia Circuit described the CFPB as “unconstitutionally structured” and a “gross departure from settled historical practice.” The appellate court even curbed Director Richard Cordray’s nearly limitless power, making him removable by the president at any time and for any reason.

   Now the rogue agency has come under attack from legal experts across the political spectrum. What now? For issuing a proposal to force those under CFPB investigation to keep quiet about the probe. In effect, the CFPB wants to prohibit individuals and companies from disclosing confidential investigative information, keeping investors, shareholders, and the American public in the dark about federal investigations—threatening free speech and the public’s right to information.

   Opposing the mandate, William Johnston—chairman of the American Bar Association’s Business Law Section—argues, “Our legal system…presumes that ordinary citizens are free to discuss government activities and presumes that government efforts to restrain such speech are unconstitutional.” He adds that the CFPB’s proposal presents “severe First Amendment problems.” Johnston is joined by Arthur B. Spitzer, legal director at the American Civil Liberties Union, who also points to “serious First Amendment problems” and likens the CFPB plan to a series of “gag orders.” Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, fears that it will ultimately lead to “unwarranted fishing expeditions.”

   Unfortunately, government fishing trips have become far too common in Dodd-Frank America.