Financial Industry Allies “Preempt” Consumer Financial Protection Bureau Payday Lending Fight

Conservatives are assailing a rule on payday lending currently being formulated by the Obama administration as an attack on states’ rights.

Right-wing members of the House Financial Services Committee accused the Consumer Financial Protection Bureau of trying to “preempt” state law, in its impending regulatory initiative focusing on short-term loans.

Bureau Director Richard Cordray told the committee on Wednesday that a rule will be coming in the Spring, but that it wouldn’t be based on preemption. He said it will be focused on setting minimum standards that “seek to eliminate predatory practices that embroil many consumers in a debt trap.”

When the federal government “preempts” state law, it effectively means the statute can be ignored, as Rep. Brad Sherman (D-Calif.) noted in a back-and-forth with Rep. Mick Mulvaney (R-S.C.)

“To preempt means to prevent the state law from being effective,” Sherman said. “To supplement, you have to obey the state law and you have to obey the federal law.”

“If the federal law requires me to wear a belt, state law requires to me wear both suspenders, I will wear both,” he added.

That line of reasoning did not assuage Republicans — often hostile, when questioning Cordray. A number of Democrats, too, are fiercely critical of CFPB efforts to crackdown on loansharking.

In recent weeks, some of those Democratic lawmakers have been subject to intense criticism from the party’s rank-and-file. It came after Huffington Post published a story on the cosponsoring of anti-CFPB legislation by Democratic National Committee Chair Debbie Wasserman-Schultz (D-Fla.). The bill would allow states with regulatory regimes similar to that of Florida to be exempt from any CFPB payday lending rules.

The state’s framework was touted on Wednesday by Rep. Dennis Ross (R-Florida), the author of the aforementioned bill. Ross reacted angrily when Cordray refused to describe Florida law as a “gold standard.”

“There’s been analysis of the Florida model, and what it shows is that these loans are still being made at above a 300 percent rate of interest, and they’re being rolled over on an average of nine times for many consumers,” Cordroy said. The repeated roll-over is something Cordray and other payday lending rule supporters have described as a “debt trap.”

Ross’ proposal has significant support within the Florida Congressional delegation. Democratic co-sponsors beyond Wasserman-Schultz include Reps. Alcee Hastings and Patrick Murphy.

Murphy’s support is most notable because he is running for the Senate seat being vacated by now-failed presidential candidate Marco Rubio (R-Fla.) Despite President Obama’s numerous vows to protect the CFPB from legislative attacks, Murphy’s senatorial campaign was endorsed earlier this month by the White House.

A member of the House Financial Services Committee, Murphy did not show up on Wednesday to ask Cordray any questions.