Senate Banking Heats Up During Consumer Finance Panel

April 5, 2016

On Tuesday, April 5, 2016, the Senate Banking Committee held a hearing entitled “Assessing the Effects of Consumer Finance Regulations.”  The hearing, which fell two days before CFPB Director Cordray addressed the committee, featured testimony from a panel of three consumer financial regulation experts and a consumer advocate:  Leonard Chanin from the law firm of Morrison and Foerster, David Hirschmann from the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, well-known George Mason University law professor Todd Zywicki, and Rev. Willie Gable of the National Baptist Convention USA.


In his opening statement, Senate Banking Chairman Richard Shelby (R-AL) expressed concern about the CFPB’s lack of accountability to Congress and highlighted various rules and actions on issues such as prepaid cards, small-dollar loans, auto lending, and arbitration, which will negatively impact consumers.  “The very consumers that the CFPB was designed to help have been harmed by the Bureau because some of its rules make it more difficult for companies to lend and offer products in the marketplace,” said Shelby.  


Throughout the hearing there was considerable discussion on the CFPB’s use of enforcement actions in place of regulations.  Chanin told lawmakers, “In spite of the “dangers” and problems associated with regulations, they are vastly preferable to “regulating” by the issuance of guidance, or, even worse, use of enforcement orders to establish policy.”  


The hearing also featured debate about the Durbin amendment to the Dodd-Frank Act, which created a cap on debit interchange fees.  In reference to a paper released by the Richmond Federal Reserve Zywicki noted, “while the Durbin Amendment has saved big box retailers billions of dollars per year in interchange fees, there is no evidence to date that those cost savings have been passed on to retail consumers.”  Ranking Member Sherrod Brown (D-OH) countered the statement and derided his colleagues’ choice of witnesses, “I don’t even know where to start.  I’ve been on this committee for almost 10 years and I’ve never heard such unsubstantiated claims.”


On the issue of small-dollar loans, Zywicki responded to a question from Senator Tim Scott (R-SC), “If you take mainstream products away from people you drive them down the credit ladder from credit cards to payday loans and overdraft protections to pawn shops and so forth and so that is what we are seeing unfortunately.”  In contrast, Gable called payday loans “an abomination in plain sight” and claimed “overdraft fees are the banks’ version of preying on those with the least.”