WASHINGTON — State regulators and House lawmakers warned the Consumer Financial Protection Bureau not to preempt state laws when the agency issues its proposal to regulate payday-type loans.
Speaking at a House Financial Services subcommittee hearing on Thursday, several Republicans argued that the states were doing a good job in regulating such products.
"I find it offensive that you would say that people aren't smart enough to make decisions for themselves," said Rep. Mia Love, R-Utah. "So you have to go into states, you have to go into cities, you have to go into all these other places to say, 'trust Washington, we know what's best for you. … don't worry, your states aren't doing a great job. They don't understand what your needs are, we understand more than anybody else.'"
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The White House and other Democrats have long pushed for banks to offer affordable small-dollar loans as an alternative to payday loans and other costlier credit, but banks have struggled to make them profitable and safe for consumers.
February 8 -
The agency has struggled with how to regulate small-dollar and payday loans in recent years, pushing back its own deadline several times for completing a proposed rulemaking. That could be because the plan is so sweeping, some said.
December 14 -
The Consumer Financial Protection Bureau's plans for revamping payday lending set off a fierce debate Thursday over whether the agency had gone too far or not far enough, proving that this is likely to be one the trickiest rulemakings the agency will ever attempt.
March 26
The hearing, which was entitled "The CFPB's Assault on Access to Credit and Trampling of State and Tribal Sovereignty," was clearly prestaged to criticize the CFPB's plan to regulate short-term, small-dollar loans. The agency's acting No. 2, David Silberman, repeatedly denied that the agency was planning to preempt state laws. He emphasized that the plan would only set a floor that states could go beyond.
"We did indicate from our research, which is confirmed by our experiences, that there are 30-35% of the people for whom this works exactly as intended," Silberman said. "It's the other two-thirds who don't have the ability to repay for whom we want to create a market in which there are options for them; so they don't have to take out the loan and then two weeks later find they have to take out another loan because they don't have the money to repay the first loan."
The CFPB has not yet issued its proposal to regulate payday-type loans, but it provided an outline nearly a year ago. Lawmakers highlighted provisions of that outline which they said would conflict with existing state laws and make access to small-dollar credit tighter.
"Why are we getting all this pushback that you are trying to deny Americans from these small loans and that you're doing it very skillfully by putting forward very complex, hard-to-understand, complicated understandings of the rules?" said Rep. David Scott, D-Ga. "We as a government often times tend to overextend our effort in regulation and we wind up hurting these very people who need the help the most."
In its outline, the CFPB said it was considering requiring a 60-day "cooling-off" period before a consumer could get another payday loan after a certain amount of loans were issued. Yet some states, such as South Carolina, already have a shorter cooling-off period.
"Clearly, the CFPB does have an opinion as to whether we were right or wrong," said Rep. Mick Mulvaney, R-S.C. "For example," South Carolina "put a two-day cooling-off period in our law in 2013. … Would you still consider a 60-day cooling-off period to act as a 'floor' in South Carolina?"
Silberman repeatedly told Mulvaney the CFPB's proposal would still be considered a floor, but Mulvaney did not believe him.
"Do you really believe that or is that just what you were told to say? Come on now, because nobody believes that's a floor. It's a ceiling, isn't it? We have a lower threshold than you are suggesting," he said.
Silberman vigorously disagreed with those who claimed the CFPB's proposal would cut off access to credit for borrowers in need.
"Our goal would be that the consumers would have the opportunity to get affordable loans, whether they're short term loans or not, that's harder to say," Silberman said. "One of the problems is that folks who need these loans, it's not very many folks that can actually repay them on the short term. And so longer-term loans may be a better solution. But affordable loans are very much what we are trying to ensure will be available to consumers."
But Indiana Attorney General Greg Zoeller, who testified alongside Silberman at the CFPB, said the agency could have done more to engage state authorities on how to sync federal law with existing state laws.
"We really wanted to have much more of a dialogue on what areas we're lacking" and "where is the gap in coverage," Zoeller said. "We can do it much more pliably and flexibly at a state level than coming back here and asking this committee and the CFPB to engage in the local nuances that we're finding in our state. We had five complaints last year (on payday loans). We've handled those pretty efficiently and if we need more help from Washington, I'll call you."
Silberman said it was up to the CFPB, however, to determine what rules are needed to prevent unfair and abusive practices in credit.
"That's why we spent the last year studying this issue. That's led us to a determination that there is a problem that we need to address with respect to loans being made without regard to the consumer's ability to repay," he said. "What we are doing is establishing a federal floor and the states will continue to be able to enforce their laws and their specific requirements in addition to the federal floor that implements the obligation that's been placed upon the bureau."
But Silberman's responses did not sit well with many Republican lawmakers, including Rep. Randy Neugebauer, R-Texas.
"Here's kind of the problem: It's really up to the Congress to determine if it's appropriate to preempt the state's law, but it's not up to a bureau to do it," Neugebauer said.
