Of all the powerful business interests that have benefited from Donald Trump’s unhinged presidency, payday lenders might be the easiest to overlook. They shouldn’t be. These companies prey on precarity by offering high-cost loans to cash-strapped borrowers, making billions of dollars annually even as their customers often get stuck in a vicious cycle of deprivation.
But it’s been clear for a while now that under the president’s hand-picked leadership, the Consumer Financial Protection Bureau (CFPB)—the watchdog conceived by Elizabeth Warren to look out for regular people after the financial crisis—would refuse to regulate these lenders. Under Barack Obama, in contrast, the CFPB actually conceived and finalized a policy to rein in these loans. Last year, however, Trump’s initial acting director at CFPB, Mick Mulvaney, actually joined a lawsuit brought by the payday lending industry seeking to overturn it. A few months later, Mulvaney made clear his agency’s intention to alter (that is, gut) the rule, and the judge in the case suspended the effective date in anticipation of the lobby getting its way.
Now Trump’s new point person at this consumer agency—which ostensibly looks out for everyone from student debtors to people getting bilked for extra debit card fees—wants to finish the job. It’s the latest example of the president and his cronies hiding behind a seemingly hot economy as they dismantle what few safeguards stand between you and oblivion.
On Wednesday, former White House aide Kathy Kraninger, now atop the CFPB, proposed rescinding the heart of the payday lending rule. The more aggressive policy would have forced lenders to assess whether borrowers could actually afford to make their payments—while also meeting their other financial obligations—before issuing these risky loans. “Underwriting,” as this process is known, is common to virtually all loan transactions, because reputable lenders don’t want their loans to go into default. But payday lenders have a different model: most of their cash-strapped borrowers pay off their loans by taking out another loan, becoming trapped in a spiral of debt. This provides generous fees for payday lenders, who also make average interest rates as high as 400 percent.
CFPB’s rule, which was finalized under Obama appointee Richard Cordray in 2017, would not have put payday lenders out of business. But it would have changed the business model for small-dollar lending enough that the industry, which collectively issues around $46 billion in loans per year, undertook a monumental effort to fight it.
As VICE revealed in 2016, at a resort in the Bahamas, the Community Financial Services Association of America (CFSAA), the industry’s trade group, plotted to undermine the rule before it was even finalized. Lawyers and lobbyists discussed bombarding regulators with hundreds of thousands of comments, including from customers, to deliberately slow down the process. They urged lenders to recruit customers to sign form letters: “We will have a team of three full-time writers in our office" to assist them, said one attorney working for the industry.
This is exactly what happened: CFPB received a million public comments, many of them featuring the same words and phrases, suggesting they were ghost-written.
The industry also paid for studies suggesting many payday loan shops would likely go out of business if the rule were adopted. And they tried to use the courts to get the rule thrown out. But it turns out all they really had to do to ensure that it never saw the light of day was to get Donald Trump elected and keep him happy.
They worked that angle, too. Payday lenders have delivered over $2.2 million to Donald Trump's inauguration and political committees since 2016, including $250,000 from Advance America, the nation’s largest payday lender. And CFSAA decided to hold its 2018 annual meeting at the Trump National Doral Golf Club in Miami.
When Mulvaney, himself a past recipient of payday lending cash, became acting CFPB director in November 2017, he dropped at least one investigation into payday lenders and worked to prevent the rule from taking effect. In one case, the agency reduced a penalty (which would only have recouped excess charges) against a payday lender named Triton Management Group by two-thirds, citing the company’s “demonstrated inability to pay.”
That’s the same standard CFPB decided to eliminate for payday loan borrowers. In other words, it’s now official policy for the government to cut breaks for shady businesses facing a financial shortfall, but not for the human beings they prey upon.
The hard work of sliding campaign donations and personal flattery to a corrupt chief executive has paid off for the industry. CFPB’s proposed rule-making states that rescinding the ability-to-repay standard “would increase consumer access to credit.” If you think that the type of credit that traps you in a debt spiral with larger and larger fees is really worth getting into people’s hands, that argument might appeal to you.
Some more minor parts of the initial proposed rule would remain. Lenders would have to give written notice before withdrawing payment for their loans directly from borrowers’ bank accounts. If two consecutive attempts to make these withdrawal fail, lenders would need written consent before making a third attempt. For this reason, payday lenders have had the nerve to criticize the CFPB’s gift to their bottom line, pronouncing themselves disappointed. “We believe the 2017 final rule must be repealed in its entirety,” said Dennis Shaul, CEO of the CFSAA, in a statement.
Meanwhile, the proposal is open to public comment for 90 days, but nobody really believes Trump’s people are keeping an open mind. As Sherrod Brown, ranking Democrat on the Senate Banking Committee and a potential presidential candidate, said in a statement Wednesday, “The CFPB is helping payday lenders rob families of their hard-earned money.”
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