What Payday Loans And The Mets Have In Common

October 6, 2016 at 9:28 am Leave a comment

metsfanSomethings are just meant to be.  The Mets are almost  always going to be no better than a slightly above average baseball team,  destined to leave their fans in stunned disbelief like a bride left at the altar;  payday loans will always be around: The question is how best to regulate them?

The NCUA took a shot at answering this question when it submitted a letter commenting on the CFPB’s Payday Loan proposal.  It not only argues that the CFPB should categorically exempt PAL loans from these  regulations but  it also advocates  for a numerical threshold below which financial institutions  could make loans that are technically payday loans  without complying with the regulation, thereby letting them avoid the underwriting and disclosure requirements proposed by the CFPB. The Association makes an almost identical argument in its comment letter to be submitted to the Bureau. Here is why a threshold makes sense.

Despite the CFPB’s best efforts, payday loans are, and will remain, the pornography of the financial industry: They can’t be defined, but you know it when you see it. In its extensive research on the payday lending industry, the CFPB makes a convincing argument that the industry’s business model is predicated on s customers getting into more and more debt.  An industry that profits only if its customers are made poorer and more financially desperate is repugnant and should be regulated.

But not all short-term loans are predatory loans. For example, there are credit union CEO’s who don’t officially offer  payday loan alternatives but who know and trust their members enough to give them a short-term loans when they are in a jam. No one is going to get rich of these loans. The problem is that unless the CFPB either exempts credit unions from these regulations, or at least allows them to make a certain number of short-term loans without having to worry about these regulations, credit unions will actually have less flexibility to provide emergency loans to those who need them. In other words, the CFPB should promulgate a regulation that goes after the Payday lending industry, not short-term loans. A numerical threshold accomplishes this goal.

The God Mother of the CFPB, Massachusetts Senator Elizabeth Warren, once compared bad financial products to defective toasters. She argued that, just like the government has the power to prevent companies from selling defective toasters, it should have the power to prohibit the sale of defective lending products. This analogy has always driven me nuts.  A defective toaster helps no one but the costs and benefits of a loan ultimately depend on the circumstances of the person applying for it.

The CFPB needs to understand this distinction as it finalizes these regulations…….

On that note, your blurry eyed blogger is off to the start the day, having watched the New York Mets lose their last game of the 2016 season. I know you’re not supposed to enjoy watching other people suffer, but as a lifelong Yankee fan, I got the biggest kick out of watching all those shocked Met fans moments after a 3 run home run ended their season. By the way, this is the year the Cubs’ drought ends. This  prediction  is as solid as your best collateral.

 

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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