Payday Lending, Bank Overdraft Protection, and Fair Competition at the Consumer Financial Protection Bureau
Robert L. Clarke
Bracewell & Giuliani LLP
Todd J. Zywicki
Antonin Scalia Law School, George Mason University; PERC - Property and Environment Research Center
November 22, 2013
Mercatus Center Working Paper No. 13-22
Review of Banking and Financial Law, Vol. 33, No. 1, pp. 235-281, 2013
George Mason Law & Economics Research Paper No. 13-66
The Consumer Financial Protection Bureau (CFPB) is considering new regulation of payday lending and bank overdraft protection. The Dodd-Frank Act, which established the CFPB, recognizes that consumers benefit from competition among providers of consumer credit products. That law requires the CFPB to preserve fair competition by providing consistent regulatory treatment of similar products offered by both bank and nonbank lenders. We illustrate how this mandate for fair competition applies to the regulation of payday lending and bank overdraft protection, products that are offered by different entities but attract an overlapping customer base, compete with each other directly, and raise similar consumer protection concerns. Unequal regulation would provide a competitive advantage for one product over another, resulting in reduced choice and higher prices for consumers, without a corresponding increase in consumer protection. Therefore, as the CFPB considers new regulation of these products, it should be careful to regulate them similarly to preserve fair competition.
Number of Pages in PDF File: 48
Keywords: consumer credit, overdrafts, alternative financial services, consumer protection, government policy and regulation, payday lending, overdraft protection
JEL Classification: D14, D18, G21, G23, G28
Date posted: November 24, 2013 ; Last revised: March 27, 2014
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