By Bill Britt
Alabama Political Reporter
As the administration of President Donald J. Trump moves to dismantle Obama-era regulations on lending, the opposite is true here in Alabama, where some legislators are pushing for more rules, not less.
Earlier this month, the Trump administration signaled its intentions to roll back and limit the powers of the Consumer Finance Protection Bureau (CFPB), as part of the Republican effort to end the Dodd-Frank Act.
The centralized structure of the CFPB was conceived by Democrat Sen. Elizabeth Warren and strongly opposed by Republican Sen Richard Shelby who in a 2011 Wall Street Journal Op-Ed warned against “The Danger of an Unaccountable ‘Consumer-Protection’ Czar.” A case now before the federal bench will determine if President Trump can even fire the head of the CFPB.
Under President Obama, the CFPB targeted, “financial market largely abandoned by banks, where borrowers take out short-term loans of a few hundred dollars, paying effective annual interest rates over 300 percent,” as well as vehicle title loans and other types of installment loans, according to The National Review.
State Sen. Arthur Orr (R-Decatur), the powerful chairman who oversees the Education Trust Fund Budget is one such legislator who believes CFPB-style regulations should be enacted by the State legislature. Orr is sponsoring sweeping legislation that critics say would end payday lending and other small loans. Orr’s SB287 would specify a minimum term for certain small loans; to prohibit a lender from charging an additional acquisition fee for a small loan refinanced and further regulate money advanced in exchange for a security interest in such as titled personal property owned by a consumer,
However, the Trump administration is sending strong signals that it wants to repeal many of the CFPB’s mandates including caps on small high-risk loans. Earlier this month, speaking at the National Association for Business Economics’ annual economic policy conference, Mark Calabria, Chief Economist to Vice President Mike Pence, addressed changes likely to occur within the CFPB. Rather than repealing the agency altogether as some Republican lawmakers have called for, the administration will refocus CFPB’s efforts to “actually goes after bad actors, rather than mak[ing] policy decisions that have nothing to do with bad actors.” Calabria also cited CFPB’s efforts to “limit payday loan rates,” characterizing such limits as paternalistic and asserting that officials should not “second-guess terms freely agreed to by lenders and borrowers,” according to published reports.
Orr is not the only lawmaker or operative going against the idea embraced by Trump, at the State House a group of paid political operatives, registered and some unregistered, falsely claiming to be supported by the Alabama Federation of Republican Women are citing old resolutions and outdated press reports to convince Republican lawmakers to back CFPB type legislation on small borrowing, which has swayed several Republican Legislators.
Calabria’s comments on the CFPB are not surprising given his background as former director of the Cato Institute’s financial regulation studies. The Libertarian policy group has long railed against the Nanny-state, and its “Government knows best,” guardianship.
On his Senate web page, Orr says he’s a “doer.” Over the last two years, has joined forces with Arise Citizens’ Policy Project, Alabama Appleseed, the Alabama State Conference of the NAACP, the Alabama Citizens’ Action Program, and the Southern Poverty Law Center, to enact legislation, the groups say, will protect poor and lower income consumers from themselves.
This is contrary to the market-driven approach favored by the Trump administration, and one Orr embraces for the sale of alcohol. He is again sponsoring legislation to privatize the State’s Alcoholic Beverage Control Board, preferring a free market to determine the future of liquor.
Thaya Brook Knight, Associate Director of financial regulation studies at the Cato Institute, sees the CFPB’s attitude toward small loan borrowers, “paternalism (and a whiff of classism).”
This is not to say that small lenders shouldn’t be regulated, but they shouldn’t be driven out of business by the sympathies of those who think they know what’s best for everyone.
Brook Knight citing a Pew study says, “81 percent of [small loan] borrowers said that if they did not have access to payday loans, they would cut down on expenses such as clothes and food. The fact that people buy food with their loans is not an argument for abolishing them; people having enough to eat, is a good thing.”
Of course, those who use ATM’s outside of their network pay hefty fees. “If you pay $3 every Friday night to take $40 out of an ATM, that would also get you close to 400 percent on an annualized basis, if you were to pretend that paying $3 every week was the rate you were paying for the same $40,” Brook Knight points out.
But, ATM charges, along with credit cards, and overdraft fees are not questioned by those who champion for small lending reform. Rallying against such bank fees doesn’t stir heartstrings or encourage donations.
Orr has another piece of legislation aimed at the poor. This one will place more restrictions on those who receive Public Assistance, with additional requirements for TANF and SNAP, termination of some benefits, and a review of specific EBT card purchases.
In the House, Rep. Bob Fincher (R-Woodland) is sponsoring a Constitutional Amendment that would cap “certain” loans at 36 percent interest. Fincher is joined by several Republican and Democrat lawmakers.
In Washington DC, the Trump administration said it wants fewer regulations, but that message is not resonating with some of the lawmakers here in Alabama.