The head of a leading financial services organization warns that as more Americans live paycheck to paycheck, federal bureaucrats are making it harder for his industry to help.
Bill Himpler, president and CEO of the American Financial Services Association (AFSA), says America’s access to affordable credit is being threatened by confusing Consumer Financial Protection Bureau (CFPB) policies. His organization, which serves 410 member companies from every segment of the consumer credit marketplace, is taking the unusual step of asking for more federal regulation.
Lenders just want that regulation to come with clarity and transparency.
“Instead of attempting to set rules through one-off and nontransparent enforcement proceedings or overly broad and unclear guidance, AFSA and its members want the CFPB to use the well-accepted administrative rulemaking process when needed so that all players – consumers, businesses, advocacy groups and policymakers – can provide input,” Himpler said.
“Consumers and our industry need clarity, not confusion, to ensure all consumers can access the credit they need.”
Access to credit is vital as the phrase “living paycheck to paycheck” is literally true for some 100 million Americans. According to the Federal Reserve’s most recent Report on the Economic Well-Being of U.S. Households, 32 percent of U.S. households could not pay an emergency expense of $500 with their current savings.
The situation could actually be much worse, as we’ll learn on Thursday, March 7, when the Fed’s Board of Governors releases its consumer credit figure showing the amount of money Americans had to borrow to make ends meet.
Lenders represented by AFSA provide the sorts of loans those consumers rely on, including traditional installment loans, direct and indirect vehicle financing, mortgages, etc. (They do not provide payday or vehicle title loans.)
Advocates say these lenders are often locally-owned small businesses, members of the community who sponsor soccer teams and contribute to the community. They are already regulated at both the federal and state levels. But now, the CFPB has launched enforcement actions that cite business practices it alleges are violations, but which are legal under state laws.
The agency has also proposed data collection requirements that, for the first time, would require lenders to ask customers for information such as sexual orientation and financial data unrelated to the credit they are seeking and share it with the agency.
The goal, says Himpler, is to create new rules for these businesses that Congress hasn’t passed.
“The CFPB is creating policy by enforcement actions, press releases, and blogs. It’s literally like being pulled over for speeding by a state trooper when there’s no posted speed limit. That uncertainty makes it harder for lenders to serve consumers looking for credit, and creates a chilling effect that’s going to have a negative effect on the folks who need it most.”
Which is why some consumer advocates are asking why the CFPB is choosing now to rework rules on Americans’ access to affordable credit.
The CFPB, created by the 2010 Dodd-Frank Act, was created to rein in the high-finance excesses that led to the 2008 crash. The independent agency has jurisdiction over banks, credit unions, payday lenders, mortgage companies, debt collectors, and other financial-services providers operating in the United States.
Currently led by Biden appointee Rohit Chopra, the CFPB has a history of accusations of unconstitutional and unethical behavior, not just by free market advocates but by federal judges.
In an open letter to Chopra and the entire CFPB in 2022, the Chamber of Commerce wrote, “The Bureau’s self-expansion of its authority will impose significant burdens on banks, financial markets, and the consumers they serve.”
Recently, the agency has proposed data collection requirements that require some lenders to ask their customers for information about sexual orientation and unrelated financial data. Lenders are worried these new rules could force them to run afoul of federal law.
“The CFPB doesn’t provide a lot of guidance. They’re not using the traditional rulemaking authority that’s been in place for decades that allows for notice and comment,” Himpler continued. “It’s an interesting way to run a railroad, especially when consumers are not feeling secure in the current economic environment, and they need that access.”
While on the one hand, no one wants to see desperate people exploited, that doesn’t mean Americans of modest means should lose access to credit. To provide greater clarity, Himpler’s group AFSA – the trade association for the consumer credit industry – has proposed a “Rules of the Road” for CFPB and other regulatory agencies to follow. AFSA’s rules are:
· Consumer Confidence
· Affordable Price
· Clarity and Certainty
· Privacy and Security
“The bottom line is we want to work with the CFPB to make sure that the consumer credit market is as vibrant as it can be,” Himpler said. “We understand they have a role to play, but they need to make some changes to maintain that goal. With so many people living paycheck to paycheck, now is not the time to be slamming on the brakes or swerving into oncoming traffic.
“Consumers and our industry need clarity, not confusion, to ensure all consumers can access the credit they need.”
