Our friends at the Cato Institute recently hosted an excellent discussion on financial opportunity and inclusion titled “How Credit Is Reaching Underserved Communities,” featuring an impressive panel of experts, including CEI board member Todd Zywicki of George Mason University.
The Cato summary of the event:
New financial tools are bringing more people into the modern financial world—changing how households save, borrow, invest in their futures, and pay for everyday needs, while helping serve the unbanked and underbanked in society. What innovations are making access to financial services easier, more affordable, and safer? How are regulators adapting to such rapid change? Is our regulatory framework helping or hindering progress toward more inclusion?
Unfortunately, over the last several years federal regulation in the U.S. has been hindering progress toward a more inclusive financial system in several ways. The Consumer Financial Protection Bureau, for example, pursued a policy that would eliminate most payday loans, despite the fact that most short-term borrowers would thus be left with fewer options and worse off financially without them. Fortunately, under Director Kathy Kraninger, the CFPB has moved to reconsider the Payday, Vehicle Title, and High-Cost Installment Loans rule. Competitive Enterprise Institute President Kent Lassman signed a coalition letter earlier this year emphasizing the deficiencies of the original rule:
The original small dollar loan rule, finalized in 2017 by then-director Richard Cordray, is one of the most detrimental regulations ever issued by the Bureau, an unaccountable and unconstitutional regulator established by the Dodd-Frank Act. Put forward under the guise of consumer protection, the rule would have stripped valued financial services away from some of the most vulnerable people in society.
Without reform, the CFPB’s rule would have all but eliminated these alternative financial industries, wiping out around $20 billion worth of credit from the economy and leaving millions of Americans without access to credit. This is despite the fact that there was no need for federal intervention in the first place – every single state has had laws and regulations covering payday loans for decades.
Our former colleague Daniel Press also recently wrote on several of his recommendations for the CFPB, several of which were steps that would remedy previous actions that negatively impacted access to credit and investing opportunities. See his ten-part blog post series here.