Payday Lending, Bank Overdraft Protection, and Fair Competition at the Consumer Financial Protection Bureau

48 Pages Posted: 24 Nov 2013 Last revised: 27 Mar 2014

Robert L. Clarke

Bracewell LLP

Todd J. Zywicki

George Mason University - Antonin Scalia Law School, Faculty; PERC - Property and Environment Research Center

Date Written: November 22, 2013

Abstract

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.

Keywords: consumer credit, overdrafts, alternative financial services, consumer protection, government policy and regulation, payday lending, overdraft protection

JEL Classification: D14, D18, G21, G23, G28

Suggested Citation

Clarke, Robert L. and Zywicki, Todd J., Payday Lending, Bank Overdraft Protection, and Fair Competition at the Consumer Financial Protection Bureau (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. Available at SSRN: https://ssrn.com/abstract=2358202

Robert L. Clarke

Bracewell LLP ( email )

Washington, DC
United States

Todd J. Zywicki (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8091 (Phone)
703-993-8088 (Fax)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Paper statistics

Downloads
297
Rank
82,166
Abstract Views
2,139