It looked like a child sitting in detention after school. That’s how you could describe Consumer Financial Protection Bureau Director Richard Cordray’s appearance at Congress on Thursday.
During a House Committee on Financial Services hearing, the CFPB director delivered the consumer watchdog agency’s Semi-Annual Report. If you thought it would be a simple and straight forward address then think again: it took nearly four hours.
The often tense hearing led to Committee Members questioning the statistical methods of the CFPB’s enforcement of rules, the paucity of transparency, the organization’s rulemaking authority and latest series of proposals behind new regulations pertaining to payday loans and automobile financing.
Although Cordray did have some support from a few Democrats who had lauded his work, he had a contentious back and forth with several Republicans. In fact, he was on the defense throughout most of the four-hour meeting.
In particular, Committee Chairman Jeb Hensarling, Florida Republican Congressman Bill Posey and Texas Republican Congressman Randy Neugebauer had questioned the CFPB’s attempt to rein in the payday loan industry. The CFPB argues that payday loan lenders put consumers into endless cycles of debt while charging obscene amounts of interest on short-term loans.
Hensarling, who called the CFPB “single most powerful and least accountable Federal agency,” asked for more details to regulate short-term loans. Neugebauer criticized the CFPB for not listing alternative products that could potentially fill the demand for credit.
Posey also defended the states by presenting the case that none of the rules outlined by the CFPB fit into state laws. This evidently irked Cordray, who had averred state laws are ineffective.
“Should we just leave this alone? Are the states doing fine [with payday lending]? We did research which showed large numbers of consumers who end up trapped in debt,” he said.
“They’re getting 8 to 12 loans in a cycle. Some stories are quite gross. I can’t in good conscience leave that alone. We can make reasonable interventions so people are not victims of predatory lending.”
An op-ed published Wednesday called for the CFPB to become a bipartisan commission. Several representatives from the banking industry opined that those in Washington need to structure the federal agency as a bipartisan group to ensure fairness.
Academic Paper Warns Government on Debt Collection
This hearing comes as a new academic paper warns the federal government that regulatory restrictions on debt collection may lead to burdensome consequences on consumers.
The 69-page Working Paper entitled “The Law and Economics of Consumer Debt and Its Regulation, authored by George Mason University Foundation Professor of Law and Senior Scholar of the Mercatus Center Todd J. Zywicki, states that debt collection is important to the United States economy.
“Without the ability to enforce contracts, consumer lending would be scarce and expensive,” the paper stated. “Everyone would be worse off.”
What does this have to do with payday loan lenders? According to the paper authors, restrictions on debt collections may affect credit card lending. This means, for instance, low-income consumers may be forced to turn to products like payday loans and auto title loans.
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