CFPB’s Fight Against Payday Lenders and Cash Advance – A Fair Fight?

A lot has been said about the Consumer Financial Protection Bureau’s decision to in many senses, wage a war against small time payday money lenders and universally appreciated financial products and services like a cash advance. Thaya Brook Knight, Associate Director, Financial Regulation Studies at the Cato Institute wrote a very informative letter to Mark Morelli, Office of Regulations Consumer Financial Protection Bureau. Carefully analyzing this letter, an in depth understanding of the concerns all around America can be gained.

Tactfully taking the chance to remark on the Consumer Financial Protection Bureau ‘s anticipated regulation leading payday and other types of short-range loaning, Thaya Brook Knight spoke at length about her organization’s (the Cato Institute) worries about the federal agency’s actions.

Taking A Close Look at The Cato Institute – 

The esteemed Cato Institute is a public policy research association devoted to the values of personal liberty for every citizen of the country, restricted government, unrestricted markets, and its most important mission is the establishment of peace and harmony. Its academics and experts conduct self-regulating, unbiased investigations on an extensive range of policy matters. In order to uphold its individuality, the Cato Institute takes no government backing. Cato accepts around 80% of its money through tax-deductible donations from folks committed to this common cause of raising economic awareness for the betterment of human society, leading it to a path of peace and prosperity. The rest of its funding is obtained from foundations, companies, and from the proceeds of sales of books and periodicals.

Issues Raised by Thaya Brook Knight

She raised her concerns about the federal agency’s authority to impose the regulation as suggested. She said that as the Consumer Financial Protection Bureau was aware of the fact that, the Dodd-Frank Act clearly withheld them from the authority to found a money lending limit. The proposed rule, indeed, included no express cap on the rate of interest a money lender might charge. She further mentioned the fact that the Consumer Financial Protection Bureau did note that it lacked the power to levy such a cap.

She went on to say that the structure of the rule, however, was in all probability going to have the consequence of prohibiting covered advances or loans that charged levies corresponding to a rate more than a 36% effective annual rate of percentage. She argued that the edifice, the basic structure of the regulation, therefore, it could be understood as a way of dodging the restrictions on the federal agency’s authority obligated by Dodd-Frank.

She added that, additionally, past understanding had shown that such advances could not be lucratively presented at any rate which went below the 36% mark. Drawing a suggestion from this she said that the Consumer Financial Protection Bureau’s regulation would result in the outlawing of payday advances and other low-cost advances overall.

Hitting the nail on the head she went on to say that since the Consumer Financial Protection Bureau did not have the right to form a usury restriction, it also lacked the power to ban payday moneylenders and their products and services altogether.

She went on to mention that the congress had specifically stimulated the enablement of small-term loans in Section 1205 of Dodd-Frank. Dodd-Frank stated that these advances were to be made keeping relevant legal terms and factors in mind, considering they were fair according to the standards of lending. Dodd-Frank however, never proposed that money lenders must accept the unprecedented guaranteeing obligated by the agency’s new rule.

Thus, it was effectively proven in this letter that the CFPB’s fight against payday lenders and financial products like cash advance were solely built on false grounds.

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