April 21, 2014

Payday lenders, prepaid cards and debt collectors up next for CFPB, Cordray says

The Consumer Financial Protection Bureau aims to level the playing field between consumers and providers of everything from mortgages to credit cards and student loans. Next on the docket: Tweaking payday lending - the short-term, high-cost borrowing deemed by critics as predatory.

Fresh off a new research report on the topic - and just months ahead of rule-making - CFPB Director Richard Cordray sat down with Columbus Business First to discuss that and more.

Here’s an edited and condensed version of the conversation:

What’s the end game on payday lenders?

What you’re trying to do here is preserve access to credit for those who need small-dollar credit and can use it effectively and get in and out and meet their needs. And, you’re trying to prevent the problems that end up sinking a lot of people into a trap where they live their lives off of a 400 percent-or-greater interest rate. And that will involve regulation.

What will that entail?

What we know is it does not involve capping rates, because our statute does not allow us to fix prices or set interest rates. It will have to be different terms and conditions on the loans.

What will be the industry’s reaction?

I expect that there will be resistance and challenge, and that’s pretty much been true of most everything we’ve done. But you look at this and realize there’s a lot of areas neglected for a lot of years. And, the consumer in the financial marketplace has never really had any backing from anyone to see that they’re treated fairly and to sort of even up the relations between them and the powerful financial institutions. And that’s the job that we’re tasked with doing. It’s a good job and there’s a lot of work that should have been done years ago that we’re now able to do.

Other than that, what’s on the to-do list?

As we look forward over the next year or so, we’re going to be writing new regulations affecting prepaid cards. That’s an exploding market - almost substitute-banking accounts for people who are unbanked. We’ll be getting started on payday lending regulations. We’ve opened up an inquiry into debt collection - (those) rules are significantly out of date.

Are you satisfied with the new mortgage regulations?

It’s not easy to operate in the space in a way that’s balanced between what consumers need and what businesses are trying to do. The mortgage market was the first big test for us and it’s the largest consumer financial market. In the end, we seemed able somehow to thread the needle where the rules we wrote there broadly were satisfactory on the consumer side and on the industry side. That isn’t to say that there aren’t particular complaints, issues, or problems, particularly in some smaller markets or more rural areas, where things can be a little more localized and nuanced.

Do you think the concept of ‘too big to fail’ will ever go away?

I think it will be debated ’til the cows come home. The reality is that there have been some significant changes made under Dodd-Frank and by the agency to try to address this problem. Depending on people’s point of view, some people think it’s been adequately addressed, and confident that when the next crisis hits we’ll be able to resolve institutions in a different way - this time all we had was either the blunt instrument of bailouts or the bankruptcy courts. Will we know for sure that it will work until we have another crisis and it’s tested? People will be making their best estimates, but it’s hard to know for sure.

How urgent is addressing student loan debt?

There is a crisis in student loan debt, (but) I don’t think it’s at the level of what sank the economy before. It is impairing the economy in discernable but more localized ways - it is affecting people’s ability to participate into the economy as quickly as they might have if they didn’t have that overhang. We can’t control the real driver of the problem which is tuition increases, which have been out of sight for 20 years. People sometimes talk about this agency being uncontrolled, all-powerful, but a problem like this really brings it home that we’re not. We can’t dictate the public policy that drives the cost in the first place.

Are you open to a five-person board overseeing the CFPB?

That was a big bone of contention before I got confirmed - some people were reluctant to vote for my confirmation because they would’ve preferred that mechanism. Congress settled this in the first place in Dodd-Frank and they debated whether to have a board or director. Some agencies have a board and others have a director - it can work both ways. But now that I’m confirmed and I have a five-year term, that doesn’t feel like a current issue. Whatever Congress does, we will carry out their wishes.

Any plans to come back to Ohio after your five-year term is up?

I don’t know. What I know is I have a great job, a lot of challenges, that if we do a good job on this we’ll really make a difference to people across the country and I’m totally satisfied serving my country in this way.

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