In an effort to protect payday installment loan consumers, the Consumer Financial Protection Bureau or CFPB, is now facing another challenge that will undermine its mission and operation. Even before CFPB is in operation, there has been a proposal by federal legislations that would give exemptions to non-bank lenders from different states like Arizona, California, Georgia, Illinois, Maryland, Mississippi, Missouri, New Mexico, New York, North Carolina, Ohio, Texas, and Wisconsin. This legislation is known as the House Bill 1909.
House Bill 1909, which is sponsored by California Rep. Joe Baca, seeks to create a new federal charter for non-bank financial service providers that would bypass CFPB. Moreover, the bill would preempt state consumer protection laws and rollback consumer gains nationwide. Though several states have already passed strong consumer protections against the very same lenders that this federal legislation would reverse, the bill seems to be pushing through the legislation. Once House Bill 1909 is enacted, non-bank lenders would no longer be subject to the federal Truth in Lending Act that requires them to disclose the cost of credit as an annual percentage rate (APR).
Who will benefit from this legislation? Those that belong to a wide range of businesses that offer prepaid debit cards, payday installment loans, car title loans, rent-to-own agreements, pawn shops, check cashing services and more. However, on the losing side there are the 30 million consumers who either have no bank account or those who use very limited bank services. Once House Bill 1909 is enacted, a two-tiered financial system will be created. As a result, many consumers will be deprived of their rights and may even be exploited by these non-bank lenders. According to the Federal Deposit Insurance Corporation or FDIC, the greatest effect of the enactment of House Bill 1909 will be on Black consumers, Hispanic, and American Indian/Alaskan residents.
What’s wrong with House Bill 1909? Generally, businesses governed by CFPB are obliged to provide financial services at a competitive and fair price. They offer consumers value for their hard-earned dollars. But, many non-bank financial services included in House Bill 1909 don’t fit into this description. Instead, their “repeat business” results from high fees that can trap consumers into long-term debt. Also, these same “services” are marketed as short-term transactions but will bind a consumer for a long time because of the very costly fees that many can’t afford to repay.
The Consumer Federation of America and other agencies that uphold consumer protection have already made efforts to oppose this new legislation. Many of the opponents of House bill 1909 believe that this legislation will give opportunities to lending entities and companies to evade the CFPB’s oversight. However, proponents of the bill believe it can provide urgent funding to those in need.
Though fees are high on these loans, they are used to cover high defaults. Also, proponents believe that these loans when used responsibly can help consumers save money. They reiterated that responsibility is the main key here, both on the lenders side and the consumers side.