May 23, 2018 | Research & Surveys
The Federal Reserve this week released a new report on the economic well-being of U.S. households in 2017. The report highlights that even with improved financial conditions over the past five years, 40 percent of Americans either could not cover or would struggle to cover an unexpected expense of $400. Additionally, the report found that more than one-fifth of adults are unable to pay their monthly bills in full, more than one-fourth of adults skipped necessary medical care due to financial reasons, and more than 13 million Americans are unbanked or underbanked.
“The Federal Reserve’s report proves what we have long known: millions of hard working Americans live paycheck-to-paycheck and struggle to bridge financial gaps or pay for unexpected expenses. Despite these facts, the CFPB proceeded with its misguided small-dollar loan rule under former Director Richard Cordray, which will cut off a vital source of credit for millions of Americans,” said Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA).
“Demand for small-dollar credit will continue to exist even if small-dollar loans are no longer available. Removing consumers’ access to small-dollar loans provided through legal, licensed lenders will only exacerbate the financial struggles that millions of Americans face and will force them to turn to unregulated, illegal lenders operating in the shadows,” Shaul added. “This is why CFSA recently filed a lawsuit to obtain relief for American consumers and small businesses who will be hurt by the regulatory overreach of the CFPB under former Director Richard Cordray’s highly partisan tenure.”
Other government studies have reported similar findings, according to the Federal Deposit Insurance Corporation’s (FDIC) 2015 survey of unbanked and underbanked households, which is the latest data available, seven percent of U.S. households were unbanked in 2015, representing 15.6 million adults and 7.6 million children. The same survey also found that nearly 20 percent of U.S. households were underbanked, meaning that the household had a bank account but also obtained a financial service or product outside the banking system, such as a small-dollar loan.
CFSA’s lawsuit alleges that the CFPB rule violates the Administrative Procedure Act (APA) because it exceeds the Bureau’s statutory authority and is arbitrary, capricious, and unsupported by substantial evidence. The lawsuit also argues that the CFPB’s structure is unconstitutional under the Constitution’s separation of powers because the agency’s powers are concentrated in a single, unchecked Director who is improperly insulated from both presidential supervision and congressional appropriation, and hence unaccountable to the American people.