President Barack Obama leaped to the defense of the Consumer Financial Protection Bureau on Thursday as the beleaguered federal watchdog agency unveiled proposed federal regulations to rein in payday lending.
The proposed rules prompted an outcry from the $46 billion short-term lending industry, which complained that the requirements, if enacted, would choke off important sources of credit for people in need of emergency cash.
In a speech at Lawson State Community College in Birmingham, Obama praised the rules as the first step toward curbing predatory lending practices that can trap consumers in cycles of debt. And he slammed Republicans in Congress for including provisions in their budget proposal that he said would weaken the agency and endanger the nation’s middle class.
“It makes no sense that the Republican budget would make it harder for the (bureau) to do its job and allow Wall Street to go back to the kind of recklessness that led to the crisis in the first place,” Obama said to a crowd gathered in the college’s gymnasium, where the bleachers were festooned with a large blue sign reading, “Middle Class Economics.”
The Consumer Financial Protection Bureau was created by the Dodd Frank Wall Street Reform Act of 2010. The law granted the new agency oversight over mortgages, credit reporting, debt collection and payday loans, among other financial products and services.
The bureau’s budget is funded through the Federal Reserve, an arrangement that insulates it from the politically charged congressional appropriations process.
Republicans say the bureau is a prime example of the federal government run amok — overpaid bureaucrats who hurt the economy and job creation by entangling businesses in too much red tape. They want to hold the agency more accountable by subjecting it to congressional budget approval. They’ve also proposed changing the structure of the agency from a single directorship to a five-person politically appointed commission. Some want to dismantle it altogether.
Obama pledged Thursday to veto any bill that would threaten the bureau or any other Wall Street regulation efforts.
“The Consumer Financial Protection Bureau hasn’t been around long, but already they’ve put over $5 billion back in the pockets of more than 15 million families,” he said. “Today, they’re taking new steps towards cracking down on some of the most abusive practices involving payday loans.”
The proposed payday regulations, outlined for the first time on Thursday by the consumer bureau’s director, Richard Cordray, would require lenders to make sure borrowers can afford to repay and to notify borrowers before debiting payments from their checking accounts.
They also would limit the number of loans borrowers could take out and the number of times lenders could try to withdraw payments from borrowers’ accounts, a practice that Cordray said often results in excessive fees.
Consumers often think payday loans will be easy money, Obama said, “but the average borrower ends up spending about 200 days out of the year in debt,” typically paying more than $1,000 in interest and fees for a $500 loan.