By Frank J. Diekmann
We all know what the road to hell is paved with, which leaves me wondering if the “P” in CFPB doesn’t stand for paving.
Now, good intentions have just intersected with the CFPB and payday loans, so how do you think that is going to turn out?
In 2010, after the Great Recession gutted the economy, led to an estimated seven-million foreclosures, and Wall Street did its version of “Brother, can you spare a billion?” Congress rode to the rescue (because arsonists make the best firemen, right?) with its Wall Street Reform and Consumer Protection Act, better known as Dodd-Frank for its primary sponsors, Rep. Barney Frank and Sen. Chris Dodd.
At last count Dodd-Frank and the rules it has spawned was approximately 3.5-billion pages thick, so I’ll skip right to the top-level reasons cited for its enactment: to rein in the Wall Street banks and strengthen America’s community-based financial institutions, including credit unions. The result six-and-a-half years later? Wall Street’s biggest banks are bigger than ever, and thousands of community-based banks and credit unions have disappeared, squeezed out of existence by the weight of the very rules created to save them. In the latter’s case, Dodd-Frank has been a cast-iron life preserver.
What those too-big-to-fail FIs were to Wall Street, payday lenders are to Main Street. And now the CFPB—one of the too-many-to-count offspring of Dodd-Frank—is stepping in to address one of the most abusive situations there is to be found in consumer finance. In short, it has good intentions related to the bad actors, and that should have everyone worried.
The old observation that “it costs a lot of money to be poor” has never been truer than when it comes to borrowing money from payday and auto title lenders. The CFPB’s research found no shortage of usurious, ruinous practices by payday lenders, some of which can be found here, leaving no doubt something has to be done.
It’s the Who is Doing It where the great problem lies. As CUToday.info reports here, the CFPB has responded with 1,500 pages of rules aimed at restricting those storefront and online payday lenders that often put borrowers in a never-ending debt spiral.
No Carve Out? Prepare to Be Carved Up
It would seem to be good news that credit unions and, in particular, NCUA’s PAL program, are cited by the CFPB as examples of good practices—but not so good, apparently, that the agency opted to provide a carve-out for the nation’s financial cooperatives in its new rules. And where there is no carve-out, the sad result is usually a well-intentioned carve up.
Concerns are already being expressed that those PAL loans—which are already marginally profitable at best—may end up becoming yet another unintended victim of a Washington fix-it. That isn’t good news for the people most in need of help. After all, if you can’t find a PAL at your credit union, where will you find one?
Credit unions have until September to provide comment to the CFPB. Speak up, or be prepared to be paved over.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info and followed @FrankCUToday. He is also the author of two satirical books, Cathode Rays and The Bawl Game.