Federal Consumer Watch Dog to Oversee Payday Lenders

The new federal consumer watch dog announced an agreement to team up with state regulators to oversee the lending industry, including payday lenders.

The announcement was made on Tuesday by Elizabeth Warren, the Harvard University law professor who is setting up the Consumer Financial Protection Bureau, to streamline supervision of these industries with the Conference of State Banking Supervisors.

"The new consumer financial agency and the state banking regulators are forging an alliance to protect American families," Ms. Warren said in a speech in Washington on Tuesday. "This agreement allows us to bring thousands of financial service providers out of the shadows and to begin the process of ensuring that all lenders comply with the same basic rules."

Payday lending, for the most part, is a new territory for the federal government. Until now, state authorities have licensed and supervised the tens of thousands of payday lenders, car title lenders and other short-term cash lenders.

Consumers welcome the announcement of the agreement. However, some noted that it is not comprehensive enough. They point out that regulators of the payday loan industry in certain states are not covered under the agreement. In some states, including Texas and Iowa, payday lenders and other financial firms are not regulated by the state banking supervisor but separate regulators, which are not covered under the current agreement.

Notwithstanding, Ms. Warren called the agreement an "an important first step in establishing a foundation of state and federal cooperation."

The leading trade group for payday lenders welcomed Ms. Warren's announcement. "We have a generally favorable reaction to it," said Steven Schlein, a spokesman for the group, the Community Financial Services Association (or FiCSA). "It helps consumers, and that's good, and it doesn't change our business practices. We want bad actors to be cracked down on."