Soon after United States President Barack Obama entered the Oval Office, he established the Consumer Financial Protection Bureau (CFPB), which is now celebrating its fifth birthday. The consumer federal watchdog agency was formed to regulate and monitor consumer products and services, and one of the targets by the CFPB has been the payday loan industry.
The CFPB released a proposed list of rules early last month that would create a federal regulatory framework for payday loans online for the first time in the nation’s history. Despite generating mixed reviews, the CFPB has said the new rules and regulations would go into effect as early as next year, and it’s likely that the U.S. president will help them become the law.
Over the years, the CFPB has had certain friends in Congress, including Democratic Senators Elizabeth Warren and Sherrod Brown. Over the years, the payday loan industry has had certain foes, including Warren and Brown. The two senators are also in favor of the CFPB’s new rules.
At the same time, both Brown and Warren are considered to be top Democratic vice presidential picks to run with former Secretary of State and party nominee Hillary Clinton this year.
Ultimately, should Clinton win the White House, the vice president would be a major opponent of the short-term, small-dollar, high-interest business model when they travel to Washington.
Although the two senators do support he CFPB’s initiative, they argue that the proposal to clamp down on payday loans does not go far enough. Writing in a letter to the CFPB, Brown, a senator from Ohio, and Warren, a senator from Massachusetts, they complained about some of the rules.
For instance, Brown and Warren don’t like the fact that payday lenders can make six loans to a single borrower as long as they meet certain conditions. They also questioned the potential issues with long-term payday loans, particularly if they have high origination fees. The senators, moreover, showed their frustration over the 30-day period borrowers would be required to wait to take out an additional payday loan.
“We urge the CFPB to ensure that a cooling off period is long enough that borrowers can manage their expenses and are not re-borrowing to service prior short-term loans,” they wrote in the letter, which included a dozen other Democratic representatives.
Democrats are strongly in favor of reining in payday loan stores that have interest rates as high as 390 percent. The CFPB did not include the controversial interest rate in its proposal.
The general public will have until September 14 to make a comment on the payday loan proposal. After that date has passed, the CFPB will look at all of the remarks and make any necessary revisions that would be helpful.
Meanwhile, the Republicans have regularly aired their grievances over the CFPB. The GOP has avidly contended that regulating payday loan companies that offer sums smaller than $500 would hurt consumers who rely on these alternative financial products because they don’t have access to conventional types of credit.