Chapman Law Review - Chapman University

Do Not Delete 12/7/2011 2:17 PM
24 Chapman Law Review [Vol. 15:1
Indeed, almost no federal laws are aimed directly at fringe
banking. 7 Although many states have implemented measures to
protect consumers, the federal government has largely sat on the
sidelines—until now.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act represents a massive overhaul of the federal
government approach to financial markets generally, and a
momentous sea change in the relationship between the federal
government and fringe banking. One part of this legislation
created the Bureau of Consumer Financial Protection (Bureau).
Unlike the federal agencies before it, the Bureau presents a
remarkable opportunity for the federal government to intervene
in the fringe economy. For the first time ever, the federal
government has empowered an agency to monitor and supervise
fringe creditors, to study fringe credit markets, and to
promulgate rules relating to fringe banking transactions.
This Article aims to describe and assess the effects the
Bureau will have on fringe credit markets. I make two central
claims. First, I argue that the Consumer Financial Protection
Act (Act) gives broad, novel powers to the Bureau to regulate
fringe credit. Part I describes the scope of the Bureau‘s power
under the Act, demonstrating how the Act covers the vast
majority of fringe credit transactions. Part II surveys the
substance of the Act to reveal the surprising emphasis the Act
places on the Bureau governing fringe banking transactions. The
scope of the Bureau‘s authority coupled with its substantive
mandate to confront problems in fringe credit markets signal the
new power and interest the federal government has taken in the
fringe economy.
Second, I argue that most of the justifications that have been
offered for the Bureau regulating fringe credit are flawed. To
understand why people have contended the Bureau should
govern the fringe economy, I surveyed the two most important
academic articles arguing in favor of the Bureau, and I conducted
an empirical study to measure the frequency of the rationales for
the Bureau regulating fringe credit in media, government press
releases, and testimony to Congress. Part III presents the
results of the study, and it assesses the different rationales for
the Bureau intervening in fringe credit markets. Some
7 The one exception is the Talent-Nelson Amendment aimed at stopping payday
lenders from lending money to military personnel. 10 U.S.C. § 987 (2006). See generally
Patrick M. Aul, Note, Federal Usury Law for Service Members: The Talent-Nelson
Amendment, 12 N.C. BANKING INST. 163 (2008) (discussing the intent and effects of the
Talent-Nelson Amendment).