GOP: Protect the Sharks!

Pay Day Lending Shark Some dots connect.  Dot Number One:

“A bill passed Wednesday by the House would set new limits on, and effectively cut, the amount of money the Consumer Financial Protection Bureau can spend.

The legislation, passed with nearly exclusive Republican support, was originally aimed at placing new limits on agencies writing regulations, requiring them to conduct more analysis on their impact and subjecting them to additional legal review.” [The Hill]

First, the amount cut from the Consumer Financial Protection Bureau would be some $36 million dollars less than the expected expenses for the CFPB in FY 2016.  Secondly, the “more analysis” part translates to “cost/benefit analyses” which have been a crucial part of the Republican litany.  There’s a reason to suspect that this particular dot comes with some major freight.

The “cost/benefit” analysis nearly always comes skewed in favor of the corporations.  The Institute for Policy Integrity found this to be the case in the instance of coal ash regulation in 2010, and while the major impact of the bill would be to the Environmental Protection Agency – a popular whipping boy for the Right – the abuse of the cost/benefit analysis regime could be equally unhelpful for American consumers.  The problem can be summarized as follows:

“Regulatory cost-benefit analyses are inherently vulnerable to challenge. The long-term benefits of regulations are often difficult to quantify, while the costs can be immediate and straightforward. The calculations can be even more complex with public health and safety issues, where the value of human lives must be weighed against corporate costs.” [HuffPo]

In this case we have to ask do the short term losses to the payday lenders outweigh the long term benefits of not having working Americans subject to usurious lending rates?  Evidently, Representatives Heck (R-NV3), Hardy (R-NV Bundy Ranch), and Amodei (R-NV2) [rc 64] believe that the short term losses which might accrue to the payday lenders are of more significance than the long term problems associated with payday lenders in underserved communities?   At the least, they’ve voted in favor of placing more hurdles – in the form of more litigation – in the way of any agency such as the CFPB seeking to curtail some of the more egregious business practices of payday lenders. (For more information on Cost/Benefit Analysis see Better Markets.)

Dot Number Two:

“But a late amendment from the bill’s primary sponsor, Rep. Virginia Foxx (R-N.C.), would also place new limits on the funding for the CFPB.

Foxx’s amendment, added to the bill at the House Rules Committee before it reached the House floor, would cap CFPB funding at $550 million — $36 million less than the Congressional Budget Office estimated the CFPB would spend in fiscal 2016.”  [The Hill]

Now, why would this particular agency be mentioned in this “late amendment?”  If Dot Number One makes it more difficult for an agency, such as the CFPB, to finalize regulations on corporate activity,  Dot Number Two makes it even more difficult for the CFPB to defend its proposed regulations.  Leading us to Dot Number Three.

Dot Number Three: The Consumer Financial Protection Bureau is, in fact,  about to release rules governing payday lending practices [NYT] against which the $46 billion a year industry is lobbying hard and fast.

“The rules are expected to address expensive credit backed by car titles and some installment loans that stretch longer than the traditional two-week payday loan, according to industry lawyers, consumer groups and government authorities briefed on the discussions who all spoke on the condition of anonymity because the deliberations are private. Certain installment loans, for example, with interest rates that exceed 36 percent, the people said, will most likely be covered by the rules.

Behind that decision, the people said, is a stark acknowledgment of just how successfully lenders have adapted to keep offering high-cost products despite state laws meant to rein in the loans.” [NYT]

Translation: Because the payday lenders have been relatively successful thus far in avoiding or mitigating the attempts by the states to rein in some of their more egregious practices, the CFPB has stepped in to assist consumers avoid these financial pitfalls.  And, the Republicans are quite obviously marching in step with payday lending industry lobbyists.  Now, we can see why this was one of the first bills introduced in the 114th Congress, the timing isn’t simply a matter of coincidence.

Dot Number Four: There is a secondary market for payday lender loans. [HoustonSmallBus] [ABA]  And, wouldn’t you know it – AIG and private equity group Fortress Investment Group launched a securitization of sub-prime personal loans (read: payday) in February 2013. [WallStJ]

“The $604 million issue from consumer lender Springleaf Financial, the former American General Finance, will bundle together about $662 million of loans secured by assets such as cars, boats, furniture and jewelry into ABS, according to a term sheet. Some loans have no collateral.” [WSJ]

The last time someone tried this – Conseco Finance Corporation – things did not end well. Conseco ended up in bankruptcy in 2002.  ZeroHedge opined that the Springleaf Financial deal was a resurrection of the worst of the pre-Great Recession credit bubble.   With this in mind, should it come as any surprise that Springleaf Financial partnered with private equity firm Centerbridge Partners LLP in wanting to buy into Citigroup’s One Main Financial – the big banks subprime lender? But wait, there are more suitors.  Citigroup is trying to offload that subprime business, to focus on “the affluent customer,” and Apollo Global Management has joined the potential buyers list as of January 2015.  [BloombergBus]

Let’s muse: If the Consumer Financial Protection Bureau announces regulations that might put a crimp in the profitability of payday loans, particularly those subprime personal loans which have been securitized (ABS) then the bidders from the Springleaf/Fortress operations and Apollo Global Management might not want to pay more for Citigroup’s One Main Financial – which it would very much like to offload onto someone – Lonestar, Springleaf/Fortress, or Apollo Global Management?

Or, to muse and speculate less kindly:  There’s a deal in the works to sell a subprime personal loan unit from a major U.S. bank; there are bidders from private equity firms, and it would be better for the Big Bank if the CFPB would butt out of any activity which would make the subprime personal loan units less attractive.  Further, the subprime personal loan securitization schemes might be less profitable if the CFPB puts the brakes on some of the more “profitable” practices.   If the subprime personal loan lenders aren’t as “profitable” then they might not be able to bid as much as wished for the One Main Financial spin off?

Hence, it’s necessary, nay Vital, that the CFPB be made to back off the subprime personal loan regulations and allow the bankers to continue to securitize those loans and to deal for a bigger share of the subprime personal loan pie?  Would this be part of the reason for the rush to get H.R. 50 through a compliant House of Representatives?

The Republicans have not demonstrated any particular interest in protecting the sharks of the natural variety, but they seem bent on protecting the financial ones.  And, the bigger the shark the better?  Nevada Representatives Amodei, Heck, and Hardy played right along.  Representative Titus (D-NV1), to her credit,  voted “no.”

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