By: Gabriel Rodriguez
The newly proposed and widely debated creation of a Consumer Financial Protection Agency (CFPA) under house legislation (H.R. 4173) have critics questioning how its regulation could realistically help the current state of economic crisis and its potential for limiting consumer credit options.
In an article by South Carolina Senator Jim DeMint, the following was stated regarding Banking Committee Chairman Chris Dodd’s (D-Conn.) proposed legislation: “This is regulation without reform. The bill doesn’t contain any of the answers needed to solve the underlying problems that led to the 2008 banking collapse.” Senator DeMint further explained that the office will have “sweeping authority” to regulate nearly anything considered to be financial activity, from car dealerships who offer financing, to the many retailers who offer credit cards.
Another concern that the proposed agency seems to overlook is directly related to that of the consumers that they are protecting: what about the raised costs and limited choices in products available for consumers once the legislation is approved? In addition, the primary entities seemingly concerned about providing consumers with options for short-term or alternative forms of credit are those currently providing said services, and also, the same businesses that are under fire for the proposed CFPA – the Payday Loan Lending or Payday Cash Advance Industry.
Payday loans and other similar types of short-term loans have been on the rise since the early 1990’s, recently booming due in part to the current economic crisis. This Industry could be one of many forms of alternative consumer credit that faces being “regulated” out of existing sustainability if the CFPA receives the support and authority some senators and congressman are currently seeking. In addition, the industry will now face new federal laws, on top of existing regulations, in the name of “consumer protection,” while limiting consumer options in the process with no current proposal for alternative consumer credit options to these payday loans.