The Hill published a truly outrageous op-ed yesterday by a payday lending front group, and didn’t bother to tell their readers their publication was providing a platform for a predatory hatchet-woman.
The post is here. It’s an open assault on the very idea of consumer protection regulation in finance, but before I go after the substance of the argument, I want to talk about who is making the argument. The post’s author is a woman named Gerri Guzman, who heads an organization called the Consumer Rights Coalition, which boasts of having 115,000 concerned members who want to ensure access to “all forms of credit.”
Neither Guzman nor The Hill disclose the source of the CRC’s funding. The CRC is a fake consumer group funded by the financial industry. Guzman acknowledged this in a March 16, 2010 hearing before the Arizona State Senate, which can be seen here.
The key exchange is between Guzman and State Sen. Paula Aboud, and it begins 2 hours and 43 minutes into the hearing. Here’s a transcript of the segment:
Aboud: Gerri, Who supports your organization?
Guzman: . . . I went to the financial services industry, I’m currently diversifying some of our funding . . .
Aboud: Who does your corporate sponsorship?
Guzman: Our corporate sponsorship? A lot of the payday loan industry . . .
If The Hill wants to publish payday lender propaganda, they have that right under the First Amendment. But responsible journalists should at least tell their readers when they are providing a platform for predatory hacks. Instead, The Hill lets the CRC present itself as a consumer group akin to the Consumer Federation of America, a group that actually represents consumers and favors establishing a strong Consumer Financial Protection Agency.
Now onto Guzman’s disingenuous argument. Guzman asserts that establishing a “massive, new federal agency” to oversee consumer abuses in the financial world will inevitably reduce the availability of credit to consumers. Since many consumers depend on credit to get by, Guzman says this is bad. Guzman also says that the credit card reform bill Congress passed last year has been bad, because it’s restricted access to credit and made it more expensive.
These are truly horrible things to say. In a sense, the CFPA will contract credit—predatory and deceptive credit will not be available.
But let’s be clear: the CFPA will not have any scary, radical new powers—it will have exactly the same consumer protection powers that are currently shared by five federal banking regulators. The problem with the existing regulatory regime is that those regulators don’t enforce their rules, because they often conflict with bank profitability. Banks can make a lot of money gouging consumers, so today’s regulators generally look the other way. Since the CFPA won’t have to worry about bank profitability, it will do a better job enforcing consumer protection laws.
Guzman is saying that she doesn’t believe in any consumer protection regulation whatsoever, but disguising that argument in a rant against bureaucracy. Guzman is saying it was a good idea for regulators to ignore the subprime mortgage crisis, that it was a good idea to let banks gouge people with undisclosed credit card fees, that it is fair to slap consumers with hundreds of dollars in overdraft fees without notification, and that it is fair for payday lenders to charge interest rates into the triple-digits. She is advocating for the right of big banks to steal from you without consequences. That is shameful.
The exception to all of this is bank regulation stuff is the payday lending industry, which is currently not subject to any consumer protection regulation whatsoever. It may very well be the case that some forms of payday lending are actually useful. But surely everyone can agree that not all forms of it are helpful, and that many forms are outrageously deceptive and predatory. There is no disputing that these loans have done enormous damage to communities around the country. Why should we allow credit cards and mortgages to be subject to baseline consumer protection regulations, but exempt payday loans?
As for Guzman’s comments on the credit card act: There is no evidence that the credit card reform raised interest rates. Banks are jacking up interest rates to boost profits, just because they can. The credit card law banned banks from raising interest rates on balances consumers had already accrued. If you charged debt at a 10 percent interest rate, banks were barred from pushing that interest rate to 30 percent after the fact. That’s basic market fairness—allowing companies to take more of your money after you’ve agreed to pay for something is crazy. In other industries, it would be called theft or extortion.
The Hill did not return a call for comment.