What's going on in Washington? How the CFPB is Changing the Alternative Finance Industry.
Sep 26, 2011 Todd Milner
The mood in Washington among Republicans concerning the CFPB is stalemate. According to Michael Schreiber writing for credit.com on 9/12/2011, the stalemate comes after President Obama nominated Richard Cordray to become the first director of the CFPB. The good news for the Alternative Finance Industry is that until a director is installed, the CFPB will not be able to regulate non-bank entities like payday lenders. The not so good news is President Obama is expected to "appoint" a new director during a congressional recess with the next one starting 9/26/2011. Seemingly more good news in the Dodd-Frank Act Section 1024 states "While the Bureau has authority to regulate payday lenders, the Bureau does not have authority to set usury limits". The Alternative Finance Industry may feel a tighter squeeze on unregulated practices but the profit from their services should go untouched. The Dodd-Frank Act does not specifically spell out what changes the Alternative Finance Industry can expect. Reviewing things the agency has done since its inception 7/21/2011, their main interests appears to be large banks and entities, mortgages and credit score reporting. The focus of the CFPB, according to their newly introduced www.consumerfinance.gov is to educate, to enforce and to study. What this could mean for payday lenders is the creation of consumer educational material. The material might be designed and distributed by the bureau or it could be an additional cost to lenders to create, design, print and distribute to potential financial consumers following CFPB guidelines. Lenders might also be required to provide some sort of consumer debt counseling before loaning. The CFPB believes an informed consumer has a better line of defense against abusive loan practices. Since one of the bureau's main objectives is to study, the Alternative Finance Industry can expect to be reporting to the agency. Once governed by the CFPB, payday lenders and other non-depository lenders will be forced to keep data on their consumers that will be used for analytical purposes. The bureau wants information to compile to better understand the consumer, the financial provider and the markets. Depending upon the complexity of the required data, lenders could be forced to hire additional office staff or upgrade computer systems. Finally, the Alternative Finance Industry will have a neighborhood cop on the beat supervising and enforcing federal consumer financial laws. Like good citizens, if payday lenders obey the law, it should be business as usual.