Access to Credit Builds Consumer Confidence

tight-moneyFast on the heels of the release of the CFPB’s Proposed Rule, which could effectively shut down the small dollar lending market, comes the news that consumers’ spending expectations dropped, after an upswing in September. Perhaps not surprisingly, there was also a decline in consumers’ outlook on credit availability in the year ahead, according to the Federal Reserve Bank of New York.

The New York Fed’s Survey of Consumer Expectations is a monthly, internet-based survey of approximately 1,200 household heads. It contains insight about how consumers expect overall inflation and prices for food, gas, housing, education and medical care to change over time. It also provides Americans’ views about job prospects and earnings growth, as well as their expectations about future spending and access to credit.

Access to credit is a practical necessity in today’s economy. Many consumers increasingly need credit, not for frivolous purchases, but to cover basic, everyday needs. The CFPB’s paternalistic attitude toward “protecting” consumers from the encumbrance of small dollar loans misses one very important point: denying access to credit does not make the need for credit go away. Removing a legitimate, albeit expensive, source of credit will just force consumers in great need to look elsewhere – possibly driving them into the arms of less scrupulous lenders.

The Survey of Consumer Expectations is one of the methods used to measure consumer confidence. Access to credit is a very basic factor in building consumer confidence, and should be available to all socio-economic groups.

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CFPB’s Payday Lending Rule Could Block Consumers’ Access to Small Dollar Loans

We here at CCS understand, perhaps better than most, the important role credit plays in the economy.  Consumer borrowing fuels economic growth. Credit, when used responsibly, allows consumers to spend money on goods and services, which in turn allows businesses to grow and expand, creating jobs and increasing income. So it is good news that consumer borrowing grew at a record pace in August, as reported by ACA International:

“The non-revolving credit increase was the highest since September 2015, Bloomberg reports. Economists estimated total consumer borrowing would increase $16.5 billion in August, according to the article. ‘Steady hiring and income growth may be making Americans more willing to borrow, helping to sustain consumer spending and the economic expansion,’ it states.”

The CFPB released the Proposed Rule in June, which could essentially shut down the small dollar lending market, forcing businesses to close and denying access to credit for millions of Americans who have nowhere else to turn.

At issue here are two critical points:

  • The CFPB has a predetermined viewpoint on the small dollar lending market (it is “harmful” to consumers) from which it will not be swayed by actual evidence.
  • As a result of this attitude, the CFPB approached the Small Business Regulatory Enforcement Fairness Act panel process in a purely perfunctory way. This absence of a good-faith effort to obtain meaningful feedback from small business compromises the lawfulness of any Final Rule.

It is heartening to note that the CFPB has received an unprecedented number of comments on this proposed rule from both small businesses and borrowers. We sincerely hope they will conduct serious additional research before releasing their Final Rule, especially since the Federal Appeals Court found the CFPB to be unconstitutionally structured.

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