Many Americans have faced unexpected car repair as they face a due date for a utility bill. Regardless of income, this is a difficult position to face, but even more difficult for those who do not have easy access to capital.
Unfortunately, this is the case for many. The Federal Deposit Insurance Corp. estimates that 30 million Americans are underbanked or unbanked. Given these circumstances, many are turning to small loans to get themselves out of trouble.
Short term loans act as a cash advance which is repaid in full at the borrower’s next pay period. Their convenience is essential for consumers, as many banks are unwilling to engage in these type of transactions because the low return on fees is not enough to offset the costs of compliance. While not for everyone, they are crucial for many who live on paychecks, and especially for those who struggle to qualify for other types of credit.
The Pew Research Center find that 12 million homes turn to them every year.
However, the Obama-era small dollar lending rule, finalized last October, takes this crucial financial instrument away from those who need it most.
Fortunately, a resolution introduced by Senator Lindsey Graham (RS.C.) late last month would remove the Bureau of Consumer Financial Protection’s (BCFP) regulation on low-value loans, ensuring underserved consumers quick access. in capital when they need it. this. The rule aims to prevent consumers from falling into “debt traps” in which they take out new loans to cover past loans.
Graham’s Legislation Complies With Acting Director Mick mulvaneyMick Mulvaney Headhunters Struggle to Find Jobs for Former Trump Officials: Reports Trump Leftovers Deny Social Security Benefits to Hard-Working Americans Mulvaney Calls Trump Comments on Capitol Riot “Manifestly false” MOREthe plan to follow the letter of the law as mandated by Dodd-Frank and end the activist enforcement that was rampant under the former director of the Bureau. This includes reference to the Bureau as its official title under Dodd-Frank instead of its progressive name, the Consumer Financial Protection Bureau (CFPB), and former director and appointed by Obama, Richard CordrayRichard Adams CordrayDennis Kucinich Joins Race To Be Mayor Of Cleveland Biden Administration Reverses Trump-Era Policy That Hindered Investigations Of Student Loan Companies On The Money: IRS To Begin Monthly Credit Payments tax for children July 15 | A quarter of Americans suffered financial blows in 2020: Fed MORE.
To this end, it limits the number of loans that can be taken out by a borrower at a given time. It also increases the amount of personal and private financial information that consumers must provide to lenders before they can issue a loan, including the borrower’s income, borrowing history, and financial obligations.
Many turn to these loans to cover unexpected expenses like furnace repairs or a leaky roof. Without access to these short-term loans, hard-working Americans may be faced with a Hobson’s choice to fix the car or keep the lights on and pay the electric bill.
Cash-strapped and financially strapped Americans have few options, as the rule prohibits nearly two-thirds of loans from low dollar lenders. By limiting the choices, many are forced to choose extreme alternatives, like street loan sharks or obscure figures showing up on your doorstep with offers that are too good to be true.
Graham’s legislation, SJRes. 56, was introduced under the Congressional Review Act (CRA), a fast-track and filibuster legislative process that allows Congress to overturn executive agency regulations finalized and submitted to Congress or published in the Federal Register, whichever occurs first, within 60 legislative days with a simple majority vote and the signature of the President.
In addition, Sen. Pat ToomeyPatrick (Pat) Joseph Toomey Black Women Seek To Build On Gains In Upcoming Election Watch Live: GOP Senators Introduce New Infrastructure Proposal Sasse Rebuilt By Nebraska Republican Party For Impeachment Vote MORE (R-Pa.) And Senator Ted Cruz (R-Texas) signed to co-sponsor Graham’s legislation. A supporting bipartite measure, HJRes. 122, was presented to the House by Rep. Denis rossDennis Alan Ross Biden faces enduring issues with exit from Afghanistan Biden needs Middle East strategy to avert further crises Biden steps up pressure on Iran as he grapples with MORE events (R-Fla.) Last December.
To date, Congress has removed 16 (!) Obama-era regulations using the ARC, with another resolution recently passed in the Senate and awaiting House approval which eliminate the CFPB automatic loan rule.
Additionally, Mulvaney also suspended implementation of the rule to allow for a new review. While this is a good start, it is not a long-term solution as another jurisdiction could easily reinstate the rule in the future. Using the CRA, the Little Dollars Rule could never see the light of day again, as it also prohibits the drafting of a “substantially similar” regulation at a later stage.
The window in which Congress can use the CRA to overturn this rule is expected to expire at the end of this week. As time goes by, it is essential that Congress act to relieve American consumers of this unnecessary and burdensome regulation.
Matthew Adams is Federal Affairs Associate at Americans for tax reform, a nonprofit group dedicated to lower taxes and limited government.