Just after the July 4 holiday, the Consumer Financial Protection Bureau chose to protect millions of hardworking, taxpaying Americans against the loss of access to a regulated financial product that has for decades met their need for small-dollar credit on terms they understand and appreciate. After a detailed process, the Rule regarding Payday, Vehicle Title, and Certain High Cost Installment Loans (“Small Dollar Rule”) has been finalized in a form that ensures that these Americans will retain the ability to access responsible, flexible financial services through providers conveniently located in their communities.
In an aptly timed announcement given our nation’s circumstances, and after a lengthy public comment period that saw hundreds of thousands of comments from consumers, industry stakeholders and small-business owners, the CFPB announced that it would scrap the draconian underwriting requirements sought to be imposed on small-dollar credit products. In its 237-page final rule, the CFPB provided a detailed explanation of its rationale for revising the Small Dollar Rule, setting forth a thoroughly reasoned and researched basis for paring the original 2017 regulation. In so doing, the bureau ensured that small-dollar loans, a critical form of credit for cash-strapped consumers, would remain available for those that need and choose to use them.
The bureau’s action also reflects the fact that now, more than ever, American consumers need and deserve access to a full set of regulated options when it comes to credit and other financial products. Studies show that even in normal times, 25 percent of U.S. households experience a form of economic hardship that can result in a temporary disruption in income. Even more concerning, almost 40 percent of Americans say they wouldn’t be able to pull enough money together to cover a $400 emergency expense. As our economy gets back on its feet, and Americans experience delays in the restoration of full incomes, they should be able to access a regulated small-credit product to fill gaps and maintain the ability to buy groceries, prescriptions and other necessities.
Under the leadership of former Director Richard Cordray, the CFPB sought to impose overly prescriptive regulations that would have, by its own admission, eliminated small-dollar loan products. These regulations would have impacted most harshly those most in need of a regulated option – consumers who live and work in communities that banks and credit unions have consistently left behind. As a result, financial service centers, operating in compliance with robust state and federal laws, have stepped in to deliver small-dollar lending options to consumers who are often living paycheck to paycheck.
Despite the decades-long tradition of a competitive and appropriately regulated marketplace with a history of serving consumers, the Cordray-era CFPB sought outright elimination of the industry and its products, opting to pursue arbitrary regulations – in no small part developed by the well-funded, activist community from outside the agency – that would squeeze consumers seeking access to credit and in the process eliminate local businesses operating and employing tens of thousands in those very neighborhoods. In releasing the 2017 version of the rule, leadership ignored industry and consumer feedback and instead concocted regulations that would bind terms and services to arbitrary regulatory constraints. In the end, the CFPB under Director Kathy Kraninger rightly determined that there would be significant market and consumer harm as a result of that arbitrary and burdensome regulation.
By removing the “underwriting” provisions, which would have imposed standards more akin to mortgage loans, the bureau has adjusted the regulatory framework to allow the continued availability credit tools that will enable consumers to access financial services in their communities — alongside their neighbors, with the businesses they have come to trust. It bears noting that these regulated businesses have been deemed essential by governors and mayors throughout the country, as well as the U.S. Treasury Department and the Department of Homeland Security, and have remained open and operating throughout the pandemic, delivering financial services and maintaining payrolls.
By rolling back unproven and overzealous regulations, the CFPB is helping hardworking families access responsible credit products through regulated lenders. We applaud the bureau for standing up for consumers who might otherwise suffer further financial abandonment and isolation while confronting the debilitating economic effects of this crippling pandemic.
Ed D’Alessio is the executive director of the Financial Services Centers of America, a national trade association representing businesses that offer a wide array of necessary financial products and services to tens of millions of Americans each year in accordance with state and federal law.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.