When Congress passed the infamous Dodd-Frank Wall Street regulation bill to prevent the next economic meltdown, they unleashed a wave of government regulations and bureaucratic agencies that are killing jobs and damaging the American economy. One of the worst aspects of the law was the creation of the misnamed Consumer Financial Protection Bureau (CFPB). The Bureau was created specifically to be undemocratic and beyond the reach of congressional oversight. Critics warned that would give bureaucrats unmitigated power to create government red-tape with little recourse or ability to reign in potential overreach. Recent efforts by CFPB bureaucrats to destroy the short-term lending industry are proving critics correct.
The federal government says that 20 percent of American households are “underbanked.” More than 40 million Americans don’t even have a credit score. They may have a savings account or checking account but could never qualify for a loan or mortgage from a tradition bank. Seeing a niche in the marketplace, short-term lenders, often called “payday” lenders, are serving families in need when big banks and financial institutions refuse. The purpose of these lenders is to provide short-term liquidity; perhaps even for a week or two, to help consumers fill a pressing need, such as an unexpected car repair. They are willing to give people loans when the big boys refuse.
Even though this industry is regulated on the state level, it has become the enemy of liberal activists. The Center for Responsible Lending, a group financed by vested interests in the lending industry and connected to the Self-Help Credit Union, has taking on this issue. They have a conflict of interest because they are seeking to gain access to the short-term lending industry and they are using the power of government, the CFPB to do their dirty work.
The CFPB recently promulgated new rules and regulations that would devastate the payday lending. The Bureau predicts the rule would eliminate 60% to 80% of the small dollar lending market leaving millions of poor and middle class Americans with little or no access to credit. This proposal is an extension of the Department of Justice’s “Operation Chokepoint,” which denied banking services to companies the Obama Administration deemed legal but immoral. Congress has oversight authority of the DOJ, but not the CFPB. The Bureau is housed at the Federal Reserve and is not even subject to the congressional appropriations process.
Some members of Congress, however, recognize the dangers of a bureaucrat with the power to devastate an industry whole cloth without any democratic oversight. Rep. Blaine Luetkemeyer (R-Missouri) has introduced the “Financial Institution Consumer Protection Act of 2015” to ensure the federal government cannot institute a backdoor version of Operation Chokepoint.
The Chairman of the House Financial Services Committee Rep. Jeb Henserling (R-Texas) is a committed supporter of limited government and competition. He can hold hearings studying the actions of the out-of CFPB. Maybe transparency is one way to reign in this out of control government agency.
Should the CFPB succeed in denying credit access to the working class, the only people who would benefit would be the cronies at the Self-Help Credit Union and the loan sharks that prowl the streets in our inner cities. Congress must ensure this does not happen.