Inside Financial Services

Two Months Into the Job, and the CFPB Already Has Its Nanny Hat On

That sure didn't take long. . .

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In Auto Finance News (sorry, no link), Michael Benoit reports that

A hot topic with Consumer Financial Protection Bureau staff at the most recent Federal Trade Commission roundtable revolved around the restrictions in retail installment sale contracts for moving collateral out of the country. In short, the CFPB thinks it’s a problem that service members can’t take their financed vehicles with them when they get deployed overseas. [Emph. added]

And here we were worried the CFPB might micro-regulate consumer lending! The agency’s only two months old, and it’s already obsessing over an issue so trivial that, to the best of my knowledge, no one even thought to bring it up at the height of the anti-consumer-lender hysteria that happened in the runup to the passage of Dodd-Frank: whether borrowers can take cars they’ve financed with them when they go abroad. How many people can this restriction realistically affect in any given year? I don’t seem to remember Elizabeth Warren even bothering to mention the issue in any of her jeremiads, and she had the waterfront pretty much covered. But that’s why we have government protection agencies: they conjure up new “problems,” and then “fix” them–usually at a steep cost to the consumer who’s supposedly being helped.

The reasons auto lenders won’t let borrowers take financed autos overseas are so blindingly obvious that I can only hope you’ll forgive me if I go ahead and spell them out anyway. First, liens aren’t necessarily enforceable in foreign jurisdictions. Second, insurance law and regulation tend to be different overseas than they are here. So, for that matter, is auto regulation generally. At a minimum, shipping collateral to a different country makes it more expensive for an auto lender to enforce its rights. At a maximum, the lender can lose some of those rights altogether. Can you blame companies for wanting borrowers to keep their cars stateside?

If the CFPB has already gotten so far down into the weeds that the agency is dealing with borrowers’ international auto shipping rights, it’s time to start worrying. This is an agency, remember, with a vast budget ($500 million per year, which comes directly from the Fed with little Congressional oversight) and nearly an unlimited regulatory purview. If it has to do with consumer lending, the CFPB can get involved, if it wants to. On the available evidence, the CFPB means to get involved in everything.

That’s bad. Go back to auto lending, to see why. If the CFPB ends up writing a rule that forbids lenders from prohibiting borrowers from sending their financed vehicles overseas, the result will be entirely predictable: the cost of auto loans to consumers will rise. That’s been the case, so far, with every other recent consumer lending reform. Let’s call the roll:

– The Durbin Amendment, which caps interchange fees on debit cards. Result: debit cards rewards programs have been eliminated or drastically curtailed, with no offsetting decline in retail prices.

– The CARD Act, which restricts pricing and term flexibility of credit card lenders. Result: credit card credit is now less available generally, and more expensive, than it was before the CARD Act was passed.

– The Federal Reserve rules restricting banks’ overdraft protection services. Result: the “free checking” option has disappeared; fees on checking accounts are proliferating.

Need I go on? I’m having a tough time seeing how higher prices and reduced access to credit-which is what new layers of regulation of consumer lending tends to produce-is a good thing for consumers. And based on what the CFPB is up to in these early rounds, this is only the beginning.

Update: This truly is a non-issue. On its website, USAA, the lender that caters to military personnel, veterans, and their families, says that “unlike most banks, we let you ship your car overseas when you have a permanent change of station (PCS). “ So what’s the problem again?

What do you think? Let me know!

4 Responses to “Two Months Into the Job, and the CFPB Already Has Its Nanny Hat On”

  1. Slackdaddy

    Look if the banks had not been so lax in lending practices making credit available to people who could clearly not afford the loan we would not be in this mess. My family has been in the money lending business for 50 years. Seen how relaxing standards have driven the country to the brink.

  2. I'veGotBetterThingsToDoHowBoutYou

    Dude, spend less time venting, and more time researching. Really.

  3. Greg

    And how does a bank/credit union secure its lien in another country when this is really a state issue? One reason why auto loans are cheaper credit is the security interest on the vehicle. If in Europe or Asia or someother area of the world, how is the financial institution supposed to secure the vehicle if the service member does sell it outside the USA?

    Come on CFPB, get your act together and show that you have some sense of balance!!!

  4. realitycheck

    you put “free checking” in quotes. That is correct. It was never free. It came along with a lot of fees and an encouragement to overdraw one’s account as a short term loan. Some accounts paid hundreds of dollars in overdraft fees. Well meaning banks could not tell their customers “well, you are better off paying $8 a month to me that going with the bank that will trick you to pay fees even though the claim to have free checking. These banks found it easier to join the bandwagon and also offer “free checking”. There is for sure some bad regulation out there and some over-reaction. For example, I dont want the government for example setting price controls for what fair interchange is (it is a competitive market, let the market forces work). But if you have not written one positive article about regulatory reform since President Obama got elected, you have to admit that at least you appear disingenuous. You cant argue we should not be looking and fixing our regulatory framework after the largest financial crisis in the history of the nation.

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