5 ms·

Big benefit for payday lending companies who charge obscene fees mostly in poor and minority areas of the country. Which consumers is the CPB protecting?

cure 8y ago
The ones with very deep pockets who own the payday lending companies, of course.
mwexler 8y ago
Consumers who run payday lending companies.
- ceejayoz 8y ago
  Yup. This was made pretty clear when they tweaked the mission statement back in 2017. http://www.msnbc.com/rachel-maddow-show/the-cfpbs-mission-statement-gets-trumpian-makeover http://www.msnbc.com/rachel-maddow-show/the-cfpbs-mission-st... > The banking watchdog’s mission statement now lists its first order of business as hunting down “outdated, unnecessary, or unduly burdensome regulations.”
maratd 8y ago
> Which consumers is the CPB protecting? Those very same consumers. Large, established players do not want to even touch that customer base because it represents a high risk and a low payoff. These are the only financial services these people have access to. Cutting that off is not a solution. Encouraging competition and increasing the number of players will reduce the "obscene fees". People aren't stupid, they'll always pursue the lowest cost option. A good article/video to listen about this topic: https://reason.com/reasontv/2017/04/13/lisa-servon-banking-credit-payday https://reason.com/reasontv/2017/04/13/lisa-servon-banking-c...
- seandhi 8y ago
  There are a few startups, like Earnin, Even, and SoLo Funds trying to tackle this problem in different ways. Lending options for those markets are vitally important, for sure, but we can find a better way of doing it without abusing the ones who need it most.
  - breatheoften 8y ago
    I'd be curious to know -- if you issued loans via prepaid credit cards that explicitly could not be used for gambling/drug dealer payments - what happens to the default rate of your (remaining) customers ... - can you filter out enough high-risk scammers to serve a legitimate market segment (with more fairness) with this kind of tactic?
    - seandhi 8y ago
      I’m not sure what you mean. I recently interviewed with Earnin and SoLo Funds, and they have their own risk and reputation algorithms based on many factors. All loans are no interest - borrowers pay a gratuity of their choosing. They are running at a much lower margin than traditional loans, and especially cash advance/payday loans, from what I understand.
- Johnny555 8y ago
  From that article: The first thing that really struck me in the book is that there are more payday lenders and check cashers in the United States than McDonald's and Starbucks combined. Is that true? How much more competition do you think there can be? And if "These are the only financial services these people have access to" and "fees are high because because it represents a high risk and a low payoff", why do you think the fees will be lower without regulation?
  - maratd 8y ago
    > How much more competition do you think there can be? Quite a bit more, apparently. See the other comments here. There are startups trying to tackle the problem. Regulation is not the answer. Competition is. If you feel you can provide better service at a lower cost, the field is wide open.
    - Johnny555 8y ago
      Regulation levels the playing field. It'd be easy to undercut the airlines by starting a company that eschews safety regulations. It'd be easy to undercut the banks by starting a company that eschews financial regulations. It'd be easy to undercut a doctor by offering services by unlicensed medical staff that don't follow medical guidelines. There are lots of businesses that would be more affordable to the poor if they didn't have any regulation at all. Reasonable regulation is not a bad thing, it ensures that consumers are getting what they paid for and that they aren't being exploited. Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt.
      - maratd 8y ago
        > Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt. If that's the percentage being charged and that's the best a person can do, that means that person has a very high chance of defaulting on the loan. Which would explain why nobody else wants to lend to that person. With your regulations, that financial institution would not exist. You can't regulate people into losing money. They'll just shut down. You've now deprived the person of a legal financial option of borrowing money. You think they won't borrow anyway? They will. From a loan shark. They'll go into the black market. They'll end up paying more for that loan since the shark now needs to cover the legal risk involved and if they don't pay it back, they may end up with broken legs. How is that better?
danso 8y ago
I was going to make a joke about how it's no longer the CFPB, its public brand since its original creation, but the BCFP, a branding change that was ordered in 2018 by then-acting director Mick Mulvaney. But it looks like the new director put a stop to that nonsense: https://www.americanbanker.com/news/bcfp-no-more-kraninger-scraps-plan-to-rebrand-cfpb https://www.americanbanker.com/news/bcfp-no-more-kraninger-s...
andrewla 8y ago
Arguably, the consumers that the CPB is protecting is those who are aware of the fees and conditions but still require payday loans, who would be excluded from consideration by the new rules [1], which do not change the interest rate requirements but exclude some customers from eligibility. If people didn't want these loans, the companies would not exist. If the loans were capable of being serviced at a lower rate, then new companies would form to offer lower fees and charge less interest. The biggest blocker to the latter, ironically, is regulations that aim to prevent new payday loan companies from forming by requiring compliance with industry best practices. This is a classic example of "regulation made the problem worse, let's add more regulation and see if that fixes it." [1] https://files.consumerfinance.gov/f/documents/CFPB_Proposes_Rule_End_Payday_Debt_Traps.pdf https://files.consumerfinance.gov/f/documents/CFPB_Proposes_...
- asveikau 8y ago
  > If people didn't want these loans, the companies would not exist. Careful, you can justify all sorts of scams this way. Just substitute any kind of illegal or misleading behavior. Eg., to take it to an extreme: If the people didn't want the Nigerian prince scam, they wouldn't keep it going!
- genkimind 8y ago
  This is an excellent point.
  - megous 8y ago
    It's just one point though. Many of these comapnies engage in a very scummy behavior. Just read the linked PDF. IRL, scummy behavior often gets you ahead of the honest competitors.
- fzeroracer 8y ago
  You can also look at it from another angle, which is that companies can and will ruthlessly exploit people without other options or choices, followed by hiding fees, clauses etc designed to keep people coming back. I don't think this is a problem of regulation run amuck at all. It reminds me a lot of how games whose primary focus is gambling can and do extensively reach out to children in order to either earn money through advertising or by making kids into gambling consumers. Consumers may demand it, but you have to look at what companies do to increase demand and keep repeat customers. You could argue that if people didn't want to play those games they wouldn't exist; I argue that companies create consumers through malicious policies and advertising.
dragonwriter 8y ago
> Which consumers is the CPB protecting? (1) It's the CFPB (Consumer Financial Protection Bureau), the headline provided a description not a name (titlecase makes this ambiguous, though the body provides the correct name.) (2) It's not protecting anyone; the administration is hostile the CFPB mission. It is being neutralized from within.
- tptacek 8y ago
  I read through about half the CFPB rulemaking analysis that's being reported here and while I agree that the Trump administration is hostile to the CFPB, I don't think this is a fair summary of what's happening with the payday loan rules. As I understand it, the Obama-era CFPB rules for short-term loans basically decimate payday lending. For instance: most payday loans (85+%) are repaid, but most also require multiple sequential loans to do that. The Obama-CFPB rules set a low threshold on consecutive loans, eliminating the mechanism through which most borrowers financed them. The Trump-CFPB calculated that the Obama-CFPB rules would break something like 60% of all loans. Meanwhile, there are fairly extensive state-level regulations surrounding payday loans: many states bar them altogether, while others set rate caps so low that they can't viably be offered. There's ample evidence that states are actively engaged in making decisions about how they want lending to work. So the basic argument boils down to: If you want to end all payday lending nationwide, even for states like Illinois that have decided they should be available, then Congress should pass a law that does that. What shouldn't happen is an obscure CFPB rulemaking process that monkeywrenches the industry without a vote. I'm not a fan of payday loans and would support a congressperson who voted to ban them federally, but I understand the logic CFPB is using.
  - pvg 8y ago
    So the basic argument boils down to That's the basic argument in a particular branch Republican thought, against the entire system of regulatory power delegated by congress to federal regulatory agencies. It seems weird to state it unlabeled.
    - tptacek 8y ago
syn0byte 8y ago
Protecting the customers buying the laws of course.

cure 8y ago

The ones with very deep pockets who own the payday lending companies, of course.

mwexler 8y ago

Consumers who run payday lending companies.

ceejayoz 8y ago
Yup. This was made pretty clear when they tweaked the mission statement back in 2017. http://www.msnbc.com/rachel-maddow-show/the-cfpbs-mission-statement-gets-trumpian-makeover http://www.msnbc.com/rachel-maddow-show/the-cfpbs-mission-st... > The banking watchdog’s mission statement now lists its first order of business as hunting down “outdated, unnecessary, or unduly burdensome regulations.”

maratd 8y ago

> Which consumers is the CPB protecting? Those very same consumers. Large, established players do not want to even touch that customer base because it represents a high risk and a low payoff. These are the only financial services these people have access to. Cutting that off is not a solution. Encouraging competition and increasing the number of players will reduce the "obscene fees". People aren't stupid, they'll always pursue the lowest cost option. A good article/video to listen about this topic: https://reason.com/reasontv/2017/04/13/lisa-servon-banking-credit-payday https://reason.com/reasontv/2017/04/13/lisa-servon-banking-c...

seandhi 8y ago
There are a few startups, like Earnin, Even, and SoLo Funds trying to tackle this problem in different ways. Lending options for those markets are vitally important, for sure, but we can find a better way of doing it without abusing the ones who need it most.
- breatheoften 8y ago
  I'd be curious to know -- if you issued loans via prepaid credit cards that explicitly could not be used for gambling/drug dealer payments - what happens to the default rate of your (remaining) customers ... - can you filter out enough high-risk scammers to serve a legitimate market segment (with more fairness) with this kind of tactic?
  - seandhi 8y ago
    I’m not sure what you mean. I recently interviewed with Earnin and SoLo Funds, and they have their own risk and reputation algorithms based on many factors. All loans are no interest - borrowers pay a gratuity of their choosing. They are running at a much lower margin than traditional loans, and especially cash advance/payday loans, from what I understand.
Johnny555 8y ago
From that article: The first thing that really struck me in the book is that there are more payday lenders and check cashers in the United States than McDonald's and Starbucks combined. Is that true? How much more competition do you think there can be? And if "These are the only financial services these people have access to" and "fees are high because because it represents a high risk and a low payoff", why do you think the fees will be lower without regulation?
- maratd 8y ago
  > How much more competition do you think there can be? Quite a bit more, apparently. See the other comments here. There are startups trying to tackle the problem. Regulation is not the answer. Competition is. If you feel you can provide better service at a lower cost, the field is wide open.
  - Johnny555 8y ago
    Regulation levels the playing field. It'd be easy to undercut the airlines by starting a company that eschews safety regulations. It'd be easy to undercut the banks by starting a company that eschews financial regulations. It'd be easy to undercut a doctor by offering services by unlicensed medical staff that don't follow medical guidelines. There are lots of businesses that would be more affordable to the poor if they didn't have any regulation at all. Reasonable regulation is not a bad thing, it ensures that consumers are getting what they paid for and that they aren't being exploited. Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt.
    - maratd 8y ago
      > Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt. If that's the percentage being charged and that's the best a person can do, that means that person has a very high chance of defaulting on the loan. Which would explain why nobody else wants to lend to that person. With your regulations, that financial institution would not exist. You can't regulate people into losing money. They'll just shut down. You've now deprived the person of a legal financial option of borrowing money. You think they won't borrow anyway? They will. From a loan shark. They'll go into the black market. They'll end up paying more for that loan since the shark now needs to cover the legal risk involved and if they don't pay it back, they may end up with broken legs. How is that better?

danso 8y ago

I was going to make a joke about how it's no longer the CFPB, its public brand since its original creation, but the BCFP, a branding change that was ordered in 2018 by then-acting director Mick Mulvaney. But it looks like the new director put a stop to that nonsense: https://www.americanbanker.com/news/bcfp-no-more-kraninger-scraps-plan-to-rebrand-cfpb https://www.americanbanker.com/news/bcfp-no-more-kraninger-s...

andrewla 8y ago

Arguably, the consumers that the CPB is protecting is those who are aware of the fees and conditions but still require payday loans, who would be excluded from consideration by the new rules [1], which do not change the interest rate requirements but exclude some customers from eligibility. If people didn't want these loans, the companies would not exist. If the loans were capable of being serviced at a lower rate, then new companies would form to offer lower fees and charge less interest. The biggest blocker to the latter, ironically, is regulations that aim to prevent new payday loan companies from forming by requiring compliance with industry best practices. This is a classic example of "regulation made the problem worse, let's add more regulation and see if that fixes it." [1] https://files.consumerfinance.gov/f/documents/CFPB_Proposes_Rule_End_Payday_Debt_Traps.pdf https://files.consumerfinance.gov/f/documents/CFPB_Proposes_...

asveikau 8y ago
> If people didn't want these loans, the companies would not exist. Careful, you can justify all sorts of scams this way. Just substitute any kind of illegal or misleading behavior. Eg., to take it to an extreme: If the people didn't want the Nigerian prince scam, they wouldn't keep it going!
genkimind 8y ago
This is an excellent point.
- megous 8y ago
  It's just one point though. Many of these comapnies engage in a very scummy behavior. Just read the linked PDF. IRL, scummy behavior often gets you ahead of the honest competitors.
fzeroracer 8y ago
You can also look at it from another angle, which is that companies can and will ruthlessly exploit people without other options or choices, followed by hiding fees, clauses etc designed to keep people coming back. I don't think this is a problem of regulation run amuck at all. It reminds me a lot of how games whose primary focus is gambling can and do extensively reach out to children in order to either earn money through advertising or by making kids into gambling consumers. Consumers may demand it, but you have to look at what companies do to increase demand and keep repeat customers. You could argue that if people didn't want to play those games they wouldn't exist; I argue that companies create consumers through malicious policies and advertising.

dragonwriter 8y ago

> Which consumers is the CPB protecting? (1) It's the CFPB (Consumer Financial Protection Bureau), the headline provided a description not a name (titlecase makes this ambiguous, though the body provides the correct name.) (2) It's not protecting anyone; the administration is hostile the CFPB mission. It is being neutralized from within.

tptacek 8y ago
I read through about half the CFPB rulemaking analysis that's being reported here and while I agree that the Trump administration is hostile to the CFPB, I don't think this is a fair summary of what's happening with the payday loan rules. As I understand it, the Obama-era CFPB rules for short-term loans basically decimate payday lending. For instance: most payday loans (85+%) are repaid, but most also require multiple sequential loans to do that. The Obama-CFPB rules set a low threshold on consecutive loans, eliminating the mechanism through which most borrowers financed them. The Trump-CFPB calculated that the Obama-CFPB rules would break something like 60% of all loans. Meanwhile, there are fairly extensive state-level regulations surrounding payday loans: many states bar them altogether, while others set rate caps so low that they can't viably be offered. There's ample evidence that states are actively engaged in making decisions about how they want lending to work. So the basic argument boils down to: If you want to end all payday lending nationwide, even for states like Illinois that have decided they should be available, then Congress should pass a law that does that. What shouldn't happen is an obscure CFPB rulemaking process that monkeywrenches the industry without a vote. I'm not a fan of payday loans and would support a congressperson who voted to ban them federally, but I understand the logic CFPB is using.
- pvg 8y ago
  So the basic argument boils down to That's the basic argument in a particular branch Republican thought, against the entire system of regulatory power delegated by congress to federal regulatory agencies. It seems weird to state it unlabeled.
  - tptacek 8y ago

syn0byte 8y ago

Protecting the customers buying the laws of course.