The Payday Lender CFPA Carve-Out

 |  Includes: AEA, CSH, DLLR, EZPW, QCCO
by: Felix Salmon

Binya Appelbaum has the latest news on the shape of the consumer financial protection legislation which is likely to come out of the Senate:

Payday lenders, pawnbrokers, car dealers and other companies that make loans but do not hold bank charters would be shielded from the scrutiny of a proposed federal consumer protection regulator under the terms of a tentative compromise between senators who are attempting to craft a bipartisan bill.

Under the proposal, the regulator would hold broad authority to write rules protecting borrowers, but officials would make regular compliance checks only at banks and, for the first time, at mortgage lenders, a step that still would exclude some of the nation’s largest and most controversial lending industries.

The first response to this is, of course, outrage that Corker, who has received substantial campaign donations from payday lenders, could singlehandedly manage to remove them from CFPA oversight.

But on the other hand, it does seem to mean that some kind of CFPA might make it into the Senate and then to reconciliation. And I’m holding out a tiny bit of hope that the CFPA might still be able to write rules governing payday lenders, even if it can’t conduct compliance checks with them or otherwise directly enforce those rules. That would still be an improvement on what we’ve got right now, especially if local state AGs could use those rules to prosecute payday lenders which were in violation.

As for the CFPA being “housed” in the Fed, it’s still far from clear what that means in practice and how much de facto independence it will have.

So overall I’m still in wait-and-see mode: while I’m not happy about the direction these negotiations are headed in, I’ve been of the opinion that the CFPA has been effectively gutted ever since the House removed the mandate that banks offer plain-vanilla products alongside their complicated ones. The Senate is really just chipping away at an institution which was always going to be much weaker than it should be.