Richard Cordray is a man who has had the opportunity to see his name in the news quite a bit lately. He is the director of the Consumer Financial Protection Bureau (CFPB.) This organization is pretty much the physical manifestation of the Dodd-Frank Law, and has been pushing hard to introduce new regulations that could potentially decimate the smaller dollar/short term lending market; often referred to as the payday lending industry, though there are other types of lenders that the CFPB is actively targeting with their latest regulations.
Cordray was quoted in the Wall Street Journal as having said, “I personally believe banks and credit unions can be low-cost providers of small-dollar loans. I think that…there would and should be an ability for them to offer decent products.”
This tidbit from Mr. Cordray should both scare and sadden American consumers. It is a sad statement because of the sheer economic ignorance that it displays. But it is scary because this man – one who displays a high level of disconnect from economic reality, is also a man who has a heck of a lot of power. But what Cordray has in power, he lacks in wisdom to use the power to effectively help the American consumer. And all the while he remains almost unaccountable to any person or organization that might have a better understanding of sound economics than he possesses.
This is the United States of America, and so we are all allowed to have our own opinions. When Cordray says, “I personally believe…” or “I think…,” The CFPB director is letting everyone know that he is swimming in the shallow end of the pool of opinion. His opinion, which certainly carries a lot of sway, at least with regards to financial issues in the U.S., is that mainstream financial institutions can somehow afford to supply small dollar, short term loans at prices that are lower than what they usually charge. It looks like Cordray thinks that he knows how to keep banks more profitable than the banks know. He also injects statements of uncertainty, like lenders “should be” able to offer these types of loans to consumers. This kind of implies that the banks could already be doing so, but they don’t feel like doing so.
How is it that Cordray has the right to make decisions about fees, like interest rates, loan application fees, etc…? He implies that the banks should charge less for what they might be able to offer. How would he feel if someone from the government told him he had to sell his property or belongings at a price he didn’t think was equitable? It is more than likely that he would stand up for his rights and flatly refuse to do so. So shouldn’t the banks and credit unions do the same thing when he starts telling them how they should run their business and value their assets?
And what about the economics of payday loans. There is no one forcing people to take out these loans from a certain lending company. If someone thinks a lender is charging fees that are too high, they are free to see what competing lenders have to offer. And since people continue to use payday lenders, it shows that they have not been able to find better deals from other lending institutions.
Thus far, Cordray has shown that he doesn’t have the economic chops to make decisions that are viable for financial providers, and he lacks the tact to come up with real world solutions that actually work for American consumers. Someone needs to remind all of us taxpayers and voters exactly why this guy is still employed in a position where he wields so much power and influence…