Bill to Loosen Payday Advance Rules Would Save $24 Billion and Slash CFPB’s Funds

Over the next decade, the House Republican legislation’s move of scaling back Dodd-Frank financial regulations is expected to decrease the deficits of the federal budget by $24.1 billion. It will be also reducing the funding for the CFPB (Consumer Financial Protection Bureau) while relaxing the rules for payday advance loans.

This month, a House Committee approved the Financial Choice Act. The approval means that the bureau will now be subject to the congressional appropriations and will no longer be allowed to draw funds directly from the Federal Reserve. This change is going to decrease federal spending by $6.9 billion from 2018 to 2017.

The 2016 fiscal year, the bureau had received $565m million. Under the current law, the funding is expected to increase each year.

In 2018, the House Republican legislation is all set to decrease the funding of the bureau to $485 million and the CBO estimated that the Congress will keep yearly funding at that level over the next decade.

Since the bureau’s inception in 2011, it has recovered approximately $12 billion for twenty-nine million consumers. It has played an important role in authorizing Wells Fargo & Co. for its scandal of unauthorized-accounts.

Consumer program director at the US Public Interest Research Group, Ed Mierzwinski, said that the legislation’s backers want to severely cut the budget of the bureau.

He said that they are placing reducing the deficit over the requirements of consumers and families.

Rep. Jeb Hensarling (R-Texas), the author of the legislation, has openly been a critic of the consumer bureau. He said that its regulations on mortgages, credit cards and other lending decreases access to credit.

Hensarling’s bill, which faces tough odds in the Senate, is expected to decrease the power of the bureau and allow the President to replace its director for any reason. The President will also have the right to rename the bureau to the Consumer Law Enforcement Agency.

Hensarling says that the director of the bureau is very powerful because of a 5-year term that enables the removal of the director only “for cause” like, neglect of duty.

Those who support the bureau says that the director who requires a confirmation of the Senate need to be safeguarded from political interference. They are also of the opinion that the bureau has enacted regulations that are required to stop the predatory lending and such other abuses that was one of the causes of the Great Recession.

From Hensarling’s bill, the biggest cost savings of $14.5 billion is going to come from removing the ability of the regulators to close large financial firms if they were on the borderline of failing. That ability is called the orderly liquidation authority.

However, the CBO warned that the estimations are subject to uncertainty because it depends on the assumption that a firm is going to fall.

The two pillars of Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 were the creation of the consumer bureau and orderly liquidation authority. The provision empowers the regulators to make use of the money of the taxpayers to shut down a company whose failure would threaten the stability of the financial system.

The money is expected to be recouped from an assessment of the financial industry or from the sale of the assets of the company. The critics of Dodd-Frank, however, have called this process a taxpayer-funded bailout.

According to the CBO, the probability of such a failure is quite negligible, but the potential for cash flows is quite large.

President Trump has directed T.Mnuchin, the Treasury Secretary, to take a good look at the orderly liquidation authority as part of a wider view of potential changes to the law. The President has vowed to disassemble Dodd-Frank.

Hensarling said that CBO’s Friday report showed that his legislation is going to be enacted.

Hensarling said that Financial Choice Act ends for forever the bank bailouts and holds Wall Street and Washington responsible. It unleashes the economic potential of America and decreases the deficit by billions.

Hensarling even touted that the biggest banks would become unlikely to take advantage of the key features of the legislation. Banks may have to avoid tough regulatory oversight if they are caught holding capital that was minimum 10% of their assets. 3% is the current requirement for most banks and 6% is for institutions.

It is estimated by the CBO that the nation’s 8 largest banks including Citigroup Inc., JPMorgan Chase & Co. and Bank of American Corp., would not be likely to choose the option. Hensarling said that the legislation is mainly going to help payday advance loan providers and community banks, not large banks.


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