Chapman Law Review - Chapman University

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28 Chapman Law Review [Vol. 15:1
most likely possibility because they are declining in number 29
and they are extensively regulated by every state. 30
Finally, the Act has built into it a mechanism to prevent
lenders from circumventing regulation by disguising credit sales
as sales of other products or services. Reports indicate some
fringe bankers have created such schemes in attempt to avoid
state interest rate limits. 31 To prevent this strategic behavior,
the Act clarifies that although the Bureau does not have
authority to regulate a ―merchant, retailer, or seller of any
nonfinancial good or service,‖ 32 this exemption
does not apply to any credit transaction or collection of debt . . . in
which the credit extended significantly exceeds the market value of
the nonfinancial good or service provided, or the Bureau otherwise
finds that the sale of the nonfinancial good or service is done as a
subterfuge, so as to evade or circumvent the provisions of this title. 33
B. Pawnshops as Exchange Facilitators?
One commentator has argued that the Act singles out
pawnshops for a study, which would reinforce the belief that
pawnshops are covered by the Act. 34 The Act calls for a report on
exchange facilitators, 35 and the commentator argues that the
report thus refers to pawnshops:
Among other kinds of fringe financial services, pawn shops as a source
of temporary credit is suspected to be asset-stripping and predatory.
The Bureau must conduct a study on consumers who use exchange
facilitators for transactions primarily for personal, family, or
household purpose to analyze the effect of these firms on consumer
credit. 36
This is almost certainly not right. The Act‘s definition of an
―exchange facilitator‖ is a person who
29 See John Caskey, Fringe Banking and the Rise of Payday Lending, in Credit
Markets for the Poor 26 (Patrick Bolton & Howard Rosenthal eds., 2005) (noting that the
growth in pawnbroking stopped around 1997 and in ―many states, the number of
pawnshops actually declined between 2000 and 2002‖).
30 See generally Oeltjen, supra note 5 (discussing the effect of state regulations on
the pawnshop industry).
31 See Creola Johnson, Payday Loans: Shrewd Business or Predatory Lending?, 87
MINN. L. REV. 1, 20–21 (2002) (reporting that some payday lenders avoided rate caps by
selling advertising space to consumers).
32 Dodd-Frank § 1027(a)(1).
33 Dodd-Frank § 1027(a)(2)(B).
34 TIM FERNHOLZ, NEW AMERICA FOUNDATION, THE CONSUMER FINANCIAL
PROTECTION BUREAU: TOOLS, TRANSITIONS, AND CHOICES 9 (2010), available at
http://pubcit.typepad.com/files/fernholz_cfpb_10-2010_final.pdf.
35 Dodd-Frank § 1079.
36 FERNHOLZ, supra note 34, at 9.