Payday for the public: to break industry's stranglehold on Washington, give government the authority to see the same data that lobbyists possess.

AuthorKim, Anne

Daniel Patrick Moynihan famously wrote, "Everyone is entitled to his own opinion, but not to his own facts." In Washington, however, powerful interests frequently are entitled to their own facts--for the simple reason that they, and they alone, have access to them. When lawmakers and regulators sit down to write statutes or the rules to ensure that industries don't cheat their customers, sully the environment, or (in the case of banks) put the whole economy at risk, the principal facts they have to work with are all too often chosen by the companies and industries themselves, from proprietary data sets they control.

Scientists at Exxon, for example, knew as far back as 1977 that man-made carbon emissions--such as those resulting from burning petroleum products--contribute to climate change. But instead of sharing this information with Congress or regulators, the company poured millions of dollars into phony climate-denial research and front groups. Likewise, tobacco companies knew as early as the 1950s about the dangers of smoking but chose to mount a multi-decade campaign of disinformation and obfuscation. And then there was the 2007 financial crisis, brought about by the activities of the "shadow-banking" system. Before the crisis, federal regulators had little information about the risky behaviors and positions of this sector and couldn't have regulated it even if they had wanted to.

Sometimes the key information that public officials and citizens need to make informed decisions does emerge, but years after it would have been most helpful. It was a Pulitzer Prize-winning team of investigative reporters at the website Inside Climate News that exposed what Exxon knew and when it knew it. In the case of tobacco, a lawsuit brought by the U.S. Department of Justice under President Bill Clinton revealed the companies' conspiracy.

But rather than wait for these occasional or serendipitous moments of revelation, the better course is for governments to have access to the same data industry has--at least to the extent that it bears on public policy and welfare. That was the lesson lawmakers took from the financial crisis when they drafted the Dodd-Frank financial reform legislation in 2010.

Dodd-Frank granted federal regulators broad access to what was once proprietary information held by financial institutions. For example, as part of the now-mandatory "stress tests" administered by the Federal Reserve, banks must disclose detailed data about their capital positions and risk management practices so regulators can assess their stability.

The law also created the Consumer Financial Protection Bureau (CFPB)--the first-ever federal agency aimed at regulating consumer financial products--and gave it expansive supervisory authority over not just banks but also non-bank financial institutions like mortgage brokers and payday lending outfits that had previously escaped serious scrutiny. Importantly, Congress gave the CFPB "examination" authority--that is, the power to demand the data necessary to carry out its mission of consumer protection--as well as the capacity to conduct independent research on any developments in the marketplace that could negatively affect consumers.

As the first exercise of its investigative and supervisory authority, the bureau in 2012 turned its sights on payday lending, an industry that had grown more or less unfettered for decades while preying on the nation's most vulnerable customers. Its victims included people like Lisa Engelkins, who told the Center for Responsible Lending that she paid $1,254 in interest and fees on one $300 loan. As a single mom earning less than $8 an hour, she had the money to pay the fees but never enough to pay the principal, which she rolled over into new loans a total of thirty-five times. Another borrower, Sandra Harris, took out new payday loans to pay off old ones. She eventually held as many as six payday loans at the same time, paying $600 a month in fees alone.

To end these kinds of abuses, the CFPB announced in March 2015 its intent to regulate payday lending, along with a framework for what it might do. It is expected to propose and finalize new rules over the next year. Payday lenders are bracing themselves--the industry has all but stopped growing in anticipation--and a few state governments...

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