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Federal Government Makes Life Harder for the Average American

The opinions expressed by columnists are their own and do not necessarily represent the views of

The federal government and acolytes at the Consumer Financial Protection Bureau (CFPB) have a plan that will hurt average American’s.

According to a study done by the Federal Reserve, approximately half of all Americans don’t have the ability to handle a $400 unexpected expense. I know that is a startling claim, but it is true. It doesn’t take another study to prove it.

When the water heater breaks, or the brakes grind through the pads of the car, what are these people to do? They have to come up with the money somehow. If family is not available to help, short term lending has been the only real option for people in a moment of financial need.

Millions of Americans have voluntarily entered into small-dollar, high-interest loans to meet a shortfall. This situation is mutually beneficial to the person needing the money and the vibrant companies filling a niche that traditional banks cannot fill.

However, the big banks have found a friend in the CFPB and are using that relationship to seriously hinder the entire short term loan industry. They claim that small-dollar lending is somehow out to hurt the very people it serves. They use words like “predatory” and “abusive” when describing what the small-dollar industry does. They go on to claim that providing small amount loans at high interest rates is unsound financially and only perpetuates the poor money choices of the clients in need.

These claims couldn’t be further from the truth. A recent study has shown that the vast majority of people exercising their choice to get a small loan package have used sound money management practices. The people needing the money know what they are getting into. They know they need the money more than they need a low interest rate. Life is quite literally full of surprises, and they usually cost money.

Imagine if these small loan companies didn’t exist. Who would fill that need? The big banks do not offer anything for this type of situation. They literally have no product that could fill this need. The small loan businesses truly fill an American need and if they are ran out of business where will their customers be forced to go? Back to private lending from cousin Vinny? It is guaranteed that the unplanned needs of life do not stop just because the Obama Administration wants to eliminate an entire industry.

In June, the CFPB proposed a new rule to saddle short-term, small-dollar lenders with a mountain of new regulations and burdensome requirements focusing on the “Ability to Repay”. The regulations are in excess of 1300 new pages of bureaucracy and paperwork requirements to be passed onto consumers.  The regulations would not be the end of the world for consumers, but for the “Ability to Repay” proposed regulations that make it virtually impossible for people to secure a loan.

Essentially, this “Ability to Repay” regulatory scheme will make it more difficult to get a $500 loan than it is to secure a mortgage. Here it is in a nutshell. What would the new regulations do to consumers? The new guidelines are so complex they will confuse the consumer and drive out small lenders. Secondly, the overly prescriptive nature of the rules prohibits any kind of innovation by the lenders in providing for the needs of an evolving market. At the end of the day, there will be fewer choices for Americans thanks to the heavy hand of our government.

The new rules are so egregious that they seriously will be causing many small loan companies to consider shutting down. Buried in the mountain of paper are legal changes that put the lenders at great risk. Even the smallest error by a lender would render them liable.

This is a fine example of how you regulate an industry to death. The Obama Administration is not outlawing small amount lending; it plans to simply make it impossible for them to do business.

Sorry common people in need – the federal government is pushing these regulations in the name of protecting middle and lower class Americans, yet these actions are like turning your back on the people you are supposed to protect.

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