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Bureau of Consumer Financial Protection as State AG

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Earlier this week, the Bureau of Consumer Financial Protection filed its first lawsuit against an online lender. The alleged offense was making loans in violation of state usury and licensing laws. The Bureau alleges that, because the loans were illegal under state law, making them and collecting them violated the federal prohibition against unfair, deceptive, and abusive acts and practices. Some state attorneys general have filed their own suits on the same facts. This move by the Bureau raises a number of questions. Should the Bureau target high-cost consumer financial products even if the costs are disclosed? The loans in question come with very high interest rates, but the Bureau's complaint reproduces a table from the offending lender's website that clearly sets out how high those rates are, how many payments will have to be made, and what the amount of each payment will be. Is it the role of the new federal consumer finance regulator to enforce state laws designed to prevent consumers from taking out certain types of loans? States presumably adopted those laws with the view that the prohibitions were of sufficient importance for the states to dedicate the necessary resources to enforce them. But should a federal agency's resources be spent on enforcing consumer lending limits the merits of which it has not considered? Even well-intentioned caps constrain credit availability to consumers, which may lead to more serious financial consequences to the consumers than paying high interest rates would have. Before championing these laws, the Bureau ought to undertake the necessary analysis to determine whether they hurt or harm consumers.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.