Director Richard Cordray defended the CFPB's decision to proceed with a rule on payday lending during the bureau's Semi-Annual Report to Congress Tuesday.
Rep. Lynn Westmoreland (R-Ga.) said a lot of his constituents live paycheck to paycheck, and he asked Cordray where consumers should go if they are in need of a small loan.
"If you were me, what would you tell them if they came to me and said they had an emergency and they needed to get $50 or $100 for a week or three or four days? Where would you advise me to tell them to go to get that kind of credit?" the congressman asked Cordray during the House Financial Services hearing.
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In response, Cordray said, "There's any number of places, but I don't generally stand in the shoes and try to tell consumers what to do."
Westmoreland shot back, telling Corday, "Well, you tell them what they can't do and that's my point. I was in the building business and I've loaned people $20 or $50 or $100 that had come to me because a child was hurt, a transmission was out, had to turn on their electricity."
Westmoreland said the CFPB has told these individuals they do not have enough sense to manage their own financial affairs.
"You're trying to make rules that puts out payday lenders, pawn shops, prepaid credit cards where people can have an overdraft protection so the card wouldn't be turned down if you're going to a drug store to buy medicine for a child," he said.
Cordray said the CFPB is at the beginning of a rulemaking process on payday lending and other small dollar loans.
"That will unfold and there will be a lot of public input into it," Cordray said. "We believe people need access to credit for those purposes, exactly the kind of things you are talking about, emergency needs, but we should not easily tolerate that people end up rolling loans over and over and they end up paying far more in fees than they borrowed in the first place and they're in a debt trap."
House Financial Services Chairman Jeb Hensarling (R-Texas) asked Cordray what states have inadequate protections to justify the CFPB's involvement in payday lending.
"We're trying to calibrate and understand a market and gauge the potential for consumer harm. We have been careful and thoughtful and thorough in our approach to this," Cordray said.
Hensarling asked why the CFPB is pre-empting the current legal structure on payday lending.
"When you say pre-empt, that's sort of a loaded term. I don't know what pre-empt means here and we have not embarked on specific notice of comment of rulemaking yet," Cordray said.
Cordary declined to mention specific states the CFPB thinks have inadequate protections on payday lending.
"I'm not thinking about it in that way," he said.
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