Determining Winners and Losers in the Great Small Dollar Lending Battle

The party that plays on the left side of the fence always makes statements about how they are looking out for the poor people in this country. Ironic, then, that this is the party that is throwing its support behind the big banks, instead of actually helping poor, working-class Americans.

The Consumer Financial Protection Bureau (CFPB) has finally released their long-anticipated rule for smaller-dollar loans. The release came out on June 2nd, and it looks as though the more than 25 million Americans who have poor credit, and who rely on smaller dollar consumer lending companies to get money when they have financial emergencies, are in for a rough time.

The rule, as the CFPB has laid it out, would drastically change the process by which consumers get payday loans, title loans and other types of alternative consumer loans. The new regulation is said to be designed in such a way to protect the people who take out smaller-dollar consumer loans. However, it looks like this rule is just another attempt by bureaucrats to decide who wins and who loses in the marketplace, and that it will more than likely wind up hurting consumers instead of protecting them.

So, if the new rule slides through, who will win and who will lose?

It should be obvious to anyone who has followed this situation that the self-professed “consumer advocate groups” will wind up with a huge victory. These groups have acted as advisors to the CFPB as the new rules were created. In fact, these groups have worked so intimately together that – according to one source – a deputy director of the agency jokingly said that he was, “starting to have withdrawal pains” during a three week break in the rule making process.

Of course, the big banks can count themselves amongst the winners in this situation too. With short term lines of credit becoming harder to obtain, if the new rule takes effect, the banks will be the only game in town. That is, of course, except for the unregulated lenders out there. Other people will have no choice but to strategically overdraft their bank accounts. And the banks love it when that happens. They get to charge extra fees, and wind up raking in millions of dollars when American consumers make purchases when their bank accounts are in the red.

So Who Loses?

At the end of the day, there are several subclasses of losers, should the CFPB’s new rule become the law of the land. In general, though, the market – American consumers – are going to lose; big time! People who are underserved or completely unserved by the big banks are going to get hit especially hard. These folks have become accustomed to having their choice from different types of small dollar lending companies, and the ability to give their business to the lenders of their choice. That will be taken away, and no one is quite sure how these consumers are going to get access to small lines of credit to deal with emergency expenses. As a matter of fact, this concern seems to be inconsequential to the CFPB, the big banks, government bureaucrats on the Left and the oh-so-concerned “consumer advocate” groups.

There are still a few Republican leaders, and a handful of Democrats, who are standing up against the CFPB’s proposed regulation. In fact, some of these people are even trying to pass legislation that may very well eliminate the CFPB altogether, or dramatically reduce its power. The question is whether or not this can happen before too many American consumers are hit by a deadly one-two financial punch from the very groups that should be out to help them.

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