CFPB should make sure payday rule reboot meets consumer needs

March 8, 2018 | Commentary

National Consumer Protection Week gives us an important opportunity to reflect on whether we are truly listening to the wants and needs of American consumers.

The federal government and the entire financial services industry have a duty to help Americans understand their consumer rights so they can make well-informed decisions with their money — but it is unclear how often this is happening. To genuinely help consumers, recognition of the fundamental issues they face in their financial lives is essential.

Contrary to what many may believe, not every American has a bank account or credit card to cover financial gaps. For instance, according to a 2017 Federal Reserve study, more than 40 percent of Americans say they could not cover an emergency expense costing $400. In fact, there is a segment of the consumer population that is left out of the financial services sector altogether. Federal Deposit Insurance Corp. data show that more than 30 million U.S. households are unbanked or underbanked. Understanding how to help these individuals in managing their financial needs is a significant task.

Unfortunately, Washington has failed these consumers. As certain policymakers in our nation’s capital seek to create new consumer protection regulations, they have not spent the needed time and effort to listen to consumers’ financial needs and realities. On the contrary, many of these regulations only serve to harm consumers’ financial freedom and well-being.

One example is the Consumer Financial Protection Bureau’s rule on small-dollar lending, which was finalized in late 2017. This rule would restrict access to short-term, small-dollar loans, leaving millions of consumers without a source of credit during their most dire financial situations. Small-dollar loans help hardworking Americans manage unexpected expenses or bridge financial gaps, such as an auto repair, rent payment or medical bills. Consumers value their access to these short-term credit sources, but they stand to lose it simply because Washington did not listen.

While the CFPB claimed its rule was designed to protect consumers and serve their best financial interests, those who actually rely on the product overwhelmingly disagreed. In fact, opposition to the rule was record-breaking, with more than 1 million consumers speaking out against it. Many consumers who opposed the rule even took the time to send handwritten letters to the bureau recounting their personal stories of how small-dollar loans helped them in their times of need. Despite this massive outpouring of opposition, the agency ignored these individuals and instead imposed a regulation favored by partisan politicians and special-interest groups.

Worst of all, if the CFPB’s rule is enacted, it will leave consumers with no choice but to seek out dangerous alternatives such as unscrupulous, unlicensed, offshore or otherwise illegal lenders. That could hardly be called “consumer protection.”

The CFPB was created to look out for the best interests of American consumers, but it has gone astray. The bureau has and will continue to play a pivotal role in protecting consumers, but it must reform itself to truly accomplish this goal.

Fortunately, the new CFPB leadership has decided to reconsider this rule. During this re-examination, we urge the bureau to actually listen to consumers.

As the financial services sector and government seek to protect and strengthen consumer rights, the needs of the consumer should determine how we can help them succeed rather than enact rules or legislation that contradict the consumer experience.

Consumers understand their own financial situations — and equipping them with knowledge of their rights, encouraging consumer choice and championing financial freedom will create a vibrant consumer class in the United States.

This op-ed was published in American Banker and can be found here.