Once upon a time in Washington, Congress enacted the Dodd-Frank Wall Street Reform Act that also created the Consumer Financial Protection Bureau (CFPB). For the first time, a federal agency was charged to be the consumers’ financial cop on the beat. In its first four years, CFPB received 354,600 consumer complaints that led to $3.8 billion in restitution.
But now, under a different administration, deregulation has swung the public policy pendulum in the other direction. A bold effort to benefit business and commerce focuses on growing customers, while taking the teeth out of consumer protection with the blessings of federal regulators.
Payday lenders are among the biggest beneficiaries of this policy about-face. Instead of a string of state legislative initiatives, favorable federal regulators are stepping up to help these predatory lenders with the cooperation of banks.
On February 5, a panel of public policy experts testified before the U.S. House Financial Services Committee, chaired by U.S. Rep. Maxine Waters (D- California). The hearing was entitled “Rent-A-Bank Schemes and New Debt Traps.”
“In a simple agreement between the bank and the payday lender, the bank is identified as the lender on the borrower’s loan document. However, the payday lender immediately buys the loan from the bank and does every function related to the loan. In these partnerships, the payday lender bears at least 90 percent of the risk of…