The biggest pay day lending surprise
The biggest surprise in the CFPB’s pay day lending proposal is not what it says, but what it doesn’t say. The omission underscores yet again why Congress pushed the Constitution‘s tolerance of administrative powers to the breaking point by delegating massive de facto legislative power to an unelected independent agency.
One of the things geeks like me do when reviewing proposed regulations is go to the section of the preamble explaining where an agency gets the power to do what it is proposing. Remember, the Constitution says nothing about administrative agencies; regulations are sanctioned because of the increasingly questionable premise that they are authorized by specific laws.
Congress gave the CFPB regulatory authority over almost every important consumer lending regulation ranging from Regulation B to the Truth in Lending Act’s Regulation Z. So, I was perplexed when the CFPB made no mention of the Regulation Z or the Truth in Lending Act when it proposed its payday lending restrictions. Instead it relied on its power to regulate Unfair Deceptive and Abusive Practices (12 USCA 5531 )
What gives? I suspect that when the CFPB was deciding how it could define and regulate payday loans it was unsure of its authority to do so under the Truth In Lending Act, which, for all its complexity, is primarily designed to insure that consumers have accurate information about a loan’s credit costs. Rather than restrict the use of specific lending products,
In contrast, the CFPB’s UDAP powers, which are modeled after state laws, have been defined as broad and vague. For example, to find that a practice it is seeking to regulate is unfair, it has to have a reasonable basis to conclude that its potential risks are not outweighed by countervailing benefits to consumers or to competition. Another set of criteria can lead to a finding that a practice is abusive. Either way, the Bureau’s UDAP powers are broad enough to invalidate almost any practice the Bureau doesn’t like.
Why does this matter? It’s one thing for Congress to mandate, as it did in Dodd Frank, that the Bureau take specific steps to regulate mortgage lending and servicing practices, or to authorize caps on loans to military personnel under the Military Lending Act. It’s quite another to authorize the CFPB to amend any regulation it doesn’t think goes far enough to protect consumers
TILA was passed in 1968. Although the CARD Act imposed substantive restraints on credit card lenders, its primary goal has always been to strengthen the informed use of credit by making consumers aware of its costs. But now Who needs Congress? What UDAP allows the Bureau to do is effectively amend laws by promulgating regulations that it might not otherwise be authorized to make.
For the record, I’m at best ambivalent about payday loans, but there are bigger issues at stake here. It’s time for the courts and Congress to look at the whole forest and not just the individual trees. Supporters of the CFPB are often thought of as wide-eyed idealists out to protect the little guy from big business. But it’s not idealistic to so disdain the legislative process that you create an entity designed to circumvent it. And that is exactly what Congress has done. By creating the CFPB and giving it UDAP powers in addition to jurisdiction over most consumer regulations, Congress delegated a broad swath of its legislative powers and responsibilities to unelected bureaucrats. I for one believe that this wholesale abdication of Congressional responsibility is undemocratic and ultimately unconstitutional.