CFPB's Inconvenient Truth Revealed By Complaints Database

Townhall.com ^ | August 22, 2015 | Dan Horowitz

[Kaslin]

The Consumer Financial Protection Bureau (CFPB), a federal agency designed to purposely avoid oversight from Congress, with much fanfare recently introduced a public database cataloging all of the complaints it has received from consumers.

“Consumer complaints are the CFPB’s compass and play a central role in everything we do. They help us identify and prioritize problems for potential action,” CFPB Director Richard Cordray said in a press release announcing the new public database.

The only problem? The database shows complaints about “payday lenders,” which are currently in Cordray's cross hairs, composed less than one percent of all complaints, far outnumbered by mortgage (36 percent), debt collection (17 percent), credit reporting (15 percent) and other categories. Payday lending complaints were one of every 152 complaints the bureau received, 55 times less frequent than mortgage complaints.

Given the weight the CFPB's allies have placed on the complaints – “[Consumers] could be our eyes and ears, and we could focus our resources wherever their complaints led us” is how Sen. Elizabeth Warren described it – one would think that would make it tough for the agency to continue its regulatory blitzkrieg against the lenders.

By way of background, the CFPB recently released draft regulations that would regulate payday lenders almost entirely out of existence, for example by requiring underwriting standards similar to a home mortgage for small-value, short-term loans that are often needed in a pinch.

Alas, the CFPB does not appear to be prepared to listen to the people it says it is trying to help. As soon as the American Banker noticed the “hidden messages” in the data, a CFPB spokeswoman began furiously backpedaling. “Consumer complaints are just one way we learn about the issues consumers face in the financial marketplace,” CFPB spokeswoman Moira Vahey told the financial trade newspaper. Not, you know, the “eyes and ears” of the agency that it will follow wherever it leads them. It turns out consumers are only the CFPB's “compass” when they point in the direction regulators already wanted to go.

Perhaps, as Democratic Rep. Brad Sherman (D-CA) warned, Washington bureaucrats just don't understand that many people in the real world see short-term loans as a crucial lifeline.

“So many of the people making the decisions do not ever need a payday loan and don’t understand that you work out the percentage interest rate and isn’t it terrible that you paid $50 to borrow $400? Well, not if it keeps the lights on in your house. Do you know what the fees are to get reconnected? People in public affairs don’t know. People are in the political world always have the $400 to pay their light bill,” Sherman told Credit Union Times.

“The people who complain the loudest about payday loans are regulators, politicians and advocates that are dead set against them,” Donald Lampe, a partner at Morrison and Foerster, added to the Banker.

Notably, other types of loans, including consumer loans, student loans, and mortgages received many times more complaints than payday loans. Maybe the agency should obey its “eyes and ears” and quit the regulatory jihad against a service that's unpopular in Washington but apparently providing a legal and needed service to its customers — those whom the standard financial industry is restrained from serving by the very same CFPB.

[upchuck]

Another worthless government agency for Ted Cruz to shut down in Jan 2017.

[Bob]

Please provide a link to any payday lender requiring that $900 be repaid for a $400 loan for a month.

In California, a $300 loan (net $255) for a month (if you’re paid monthly) or 2 weeks (if you’re paid biweekly) costs you $45 in interest. That’s steep but it’s the maximum set by state law and is nowhere near your ridiculous claim.

[Alberta's Child]

Those are all valid points. What you're seeing today, though, is a systemic problem with entire groups of people who simply don't have the capability to handle money and make prudent financial decisions. In fact, our economy is built on financial irresponsibility from top to bottom.

I believe these Biblical references relate to dealings with people who are poor because of some kind of misfortune related to the human condition. I don't think any ancient culture could even imagine the kind of dysfunction that is commonplace today.

I think it's also important to note that these "predatory lenders" are not large financial institutions. Think about that for a moment: Even companies like Bank of America and JP Morgan Chase wouldn't lend money to these people at those interest rates.

[Alberta's Child]

If a lender commits a fraud the proper way to hold them accountable is a jail cell and a hefty penalty paid to their victims.

You try getting a prosecutor interested in a case where someone is being ripped off by a debt collector to the tune of tens of thousands of dollars. They'll be the first ones to tell you that it costs more to prosecute the case than they'd ever recover from the perpetrator.

That's why something like a CFPB complaint is often so effective. The CFPB functions like a national repository that allows one office to deal with @ssholes cumulatively without the time and expense of a criminal trial.

[Carry_Okie]

You try getting a prosecutor interested in a case where someone is being ripped off by a debt collector to the tune of tens of thousands of dollars.

And there is the real problem. We don't ELECT prosecutors who do the real job. We also don't ELECT politicians that set appropriate penalties because corporations are persons under the 14th Amendment. As a result "equal protection" is decidedly unequal.

I'm not trying to belittle what you said; I am trying to point out that when the people don't address the real issues we collectively deserve what we get. Unfortunately, it is individuals who pay the disproportionate burden.

That's why something like a CFPB complaint is often so effective.

So we go running to government to fix the problem and act surprised when the game ends up even more skewed than it was when the fix was put in.

[unlearner]

“Please provide a link to any payday lender requiring that $900 be repaid for a $400 loan for a month.”

Just a quick random grab for Texas (where I live):

http://www.speedycash.com/assets/pdf/tx/payday_$500_example.pdf

One month repay for $500 is $783.84 IF you get the 10% APR example plus fees.

Since I have never taken one of these loans, I am unsure if this is a cap. I know someone in another state who took one and gave me numbers like the $400/$900 though.

Regardless, it appears Texas allows more than 2.5 times the APR as California in your example.