Recent surveys continue to show that more and more Americans are wanting additional regulations with regards to how payday loan lenders and car title loan lenders do business. Federal lawmakers are starting to attempt to take away the government’s right to any sort of authority over these types of lenders who offer high-interest, short-term loans to borrowers. This new legislation from the federal lawmakers has been called the Financial Choice Act 2.0. This is a reboot of the previous rendition of the Financial Choice Act that was initially introduced by Texas representative Jeb Hensarling last year. Mr. Hensarling is backed by the banks on his decision to create this act.
Overview Of Act
The whole act is outlined over 593 pages which are aimed at rolling back many of the original provisions under the original act. It also aims to limit the ability of the CFPB to oversee the whole financial industry at all. Within the provisions of the bill are sections which would require agencies to obtain approval from congress before they can take any action against a financial institution. Another provision restricts the bureau’s ability to create rules that regulate the financial companies as well as take away the authority that the agency has to restrict arbitration.
Purpose Of Provisions
The main purpose of these revisions within the Financial Choice Act is to deregulate the financial institutions. Additionally, another measure aims to make a move against the CFPB and take away their right to oversee any area of the payday, cash advance and car title lending industries. In section 733 of the act, it calls for the removal of authority over the regulation of small-dollar credit lenders. The agency may not have the authority to exercise any enforcement or rule-making over any type of cash advance, payday loan or vehicle title loans.
However, this would also prevent the agency from being able to finalize their almost year-old lending reforms of payday loans. This is aimed at reducing the likelihood that borrowers need to take out new loans in order to cover old loans. The CFPB has offered four different options for protecting borrowers from loan traps. These protections include having a test that each company must perform before they are allowed to extend credit to borrowers and placing restrictions on rollovers. The other protection options include that there be an option for payoffs to the borrowers and each lender must start to offer less-risky loan options to their customers.
Actions Against Lenders
The measures would also prevent any agency from being able to take enforcement actions against any title loan lenders, payday loan lenders and similar lenders. In recent years, the CFPB has brought about many suits against different lending companies for allegedly pushing their borrowers into an endless cycle of debt. In July of 2014, they took action against ACE Cash Express. They are one of the largest payday loan lenders in the industry. The allegations were that they were conducting illegal debt collection practices in an effort to push their customers into borrowing additional loans which they were not going to be able to afford.
Outcome Against Ace Cash Express
After the action was resolved, Ace was required to refund their customers around five million dollars. This was on top of the five million that the company had to pay in penalties for the alleged violations regarding their unlawful lending practices. Similarly, the company Cash America was found to be running their funding illegally as well. As a result of an investigation into this company, they were ordered to pay back refunds to their customers in the amount of fourteen million dollars because of the violations.
The Washington Post has stated that this new Financial Choice Act provision could damage payday lending as we know it. A staff attorney at Consumers Union feels that the provision is just a way for the high-cost lending industry to get away with unlawful practices. All of the current problems with payday loans and vehicle title loans are well-documented and the CFPB is working hard to set better standards for the lending of these types of loans. The revisions are entirely opposite of what most borrowers are asking for. There are many hopes that congress will work hard to keep this from happening as well as not blocking the efforts to rein in on the practices.