How Changes in Financial Regulation Might Affect Payday Lender

By: Javi Calderon
How Changes in Financial Regulation Might Affect Payday Lenders

On July 21st 2010 President Barrack Obama signed into law a sweeping overhaul of the nation’s system of financial regulation. One of the most contentious aspects of the legislation is the creation of a new federal agency, the Bureau of Consumer Financial Protection, intended to protect citizens from predatory and unclear financial agreements. The Bureau will have the power to oversee, regulate and penalize businesses (such as banks, credit firms, credit card companies) that offer any kind of financial service.

Though the agreement has been signed into law, the bureau will not be operational until next year. In the meantime everything from the scope of the new agency, to who will be leading it will be up for debate.

Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank originally thought the creation of such an agency would be an easy success with the public, given the mortgage and credit crises of past several years. However, they received fierce opposition from republicans and banking/financial officials who feared that the agency would stifle the ability to get credit or payday loans for people who need them most.

In May Dodd broke off talks with the Senate Banking Committee’s top ranking Republican, Richard D. Shelby who was unwavering on his opposition of the consumer protection agency. Dodd started working on a bipartisan deal with Senator Bob Corker who suggested the agency be allowed to regulate nonbank financial institutions like payday lenders, enforce such rules against nonbank mortgage companies and loan lenders, but would have to petition a body of regulators to penalize payday lenders and other nonbank financial companies.

Questions have been raised about his suggested exemption for payday lenders due to the payday loan industry’s political presence in his home state of Tennessee. Corker states that he believes that people should withhold judgment on payday loan lenders, and claims that the exemption is not motivated in any way by the payday loan industry’s donations to his campaigns. As of now, it is still undecided exactly what businesses will fall under the scrutiny of the Bureau of Consumer Financial Protection. Though Dodd eventually scrapped most of the bipartisan agreement, he conceded to keeping most small businesses out of the Bureau’s reach and house the Bureau under the Federal Reserve.

According to President Obama, the goal of the legislation is to create a financial system that is secure and does not allow the same mistakes that almost caused a financial collapse in 2008. He envisions a responsible financial system with checks and regulations that protects consumers from predatory financial practices and that will never again need to ask tax payers to bail-out irresponsible firms.