Thursday, March 21, 2019

Trump vs. General Welfare Part 3 - payday heyday

Goodbye Consumer Finance Protection Bureau, Hello payday lenders. It looks very much like pay to play in the land of Trump.

Judd Legum at reports on the Payday Party.

This week, the payday lenders are gathering at Trump National Doral Miami for the Community Financial Services Association of America (CFSA) annual conference.

They have plenty to celebrate. After years of lobbying and litigation, the Trump administration gutted an Obama-era rule that would have cracked down on the industry’s most abusive practices.

Although Trump’s resort is expensive, it’s the second year in a row the CFSA has selected Doral for its conference. Patronizing the president’s property turned out to be a pretty good investment. The decision to rollback payday lending regulations by Trump’s Consumer Finance Protection Bureau (CFPB) will be worth $7.3 to $7.7 billion to the industry every year. (emphasis added)

That will pay for quite a few rounds of golf — even at Doral where it costs $450 to play 18 holes.

How payday lending works now

In a typical payday loan, a customer is expected to pay the money back in two weeks with his or her next paycheck. Payday lenders charge outrageous fees. For example, a “customer who borrows $500 would typically owe around $575, at an annual percentage rate of 391 percent.”

Obviously, no one with access to a credit card or a home equity line of credit would pay fees that high. It’s a product that preys on people who have no other choice. Every year, around 12 million people take out payday loans.

Payday lenders typically secure repayment by automatically debiting the amount owed from the borrower’s bank account. But that’s where the trouble really starts. Most people who take out payday loans can’t afford to repay them in two weeks and still keep up with their basic expenses. So they take out another payday loan to cover the first loan.

This cycle continues. “Over 60 percent of loans are made to borrowers in the course of loan sequences lasting seven or more loans in a row. Roughly half of all loans are made to borrowers in the course of loan sequences lasting ten or more loans in a row,” the CFPB reported during the Obama administration.

Many borrowers end up paying more in interest and fees than the original amount of the loan.

Some states have stepped into the void and effectively banned these kinds of abusive lending practices. But in the 36 states that haven’t, the payday lending industry is a thriving, multi-billion dollar business.

What the Obama administration wanted to do

The payday lending industry entices people to take out loans they can’t afford to pay back, trapping them in a cycle of high-interest debt. The CFPB under the Obama administration proposed to rein in the industry by making payday lenders verify a borrower’s income and basic expenses. The loan could only proceed if the lender made a “reasonable determination” that the borrower could pay back the loan when was due. (This is a common practice in traditional banking known as “underwriting.”)


A 2018 poll showed the payday lending rule was broadly popular. It garnered support from 79% of Americans, including 82% of Republicans, 83% of Independents, and 77% of Democrats.

How the Trump administration is shafting paycheck-to-paycheck workers

But then …

Payday lenders, who viewed the proposed Obama regulations as an existential threat, were enthused about the possibilities under a Trump administration. They opened up their wallets. Payday lenders contributed over $1.2 million to Trump’s inauguration and over $1 million to his political committees.

Their investment was handsomely rewarded. The arch enemy of the CFPB, Mick Mulvaney, went after the agency’s rules.

Things started looking up for payday lenders after Richard Cordray, the director of the CFPB under Obama, resigned in November 2017,. Mick Mulvaney, currently Trump’s Chief of Staff, took over the agency on an interim basis. While in Congress, Mulvaney opposed the creation of the CFPB, calling it a “sick, sad joke,” and received over $65,000 in contributions from payday lenders.

And, under Mulvaney’s “leadership” the CFPB went to war against itself.

The payday lending industry filed suit to block the implementation of the Obama-era rule, which was supposed to take effect this year. In an extraordinary move, after Mulvaney took over, the CFPB joined the lawsuit on the side of the payday lenders, opposing its own rule. Mulvaney argued the rule should be delayed until the lawsuit was fully resolved. This was widely seen as an effort to “delay the restrictions long enough for the bureau’s new leadership to kill them before they take effect.”

In December, the Senate confirmed Kathleen Kraninger as the new CFPB director in a 50 to 49 vote. Kraninger had no experience in consumer protection or financial regulation. She worked with Mulvaney in the Office of Management and Budget, where she focused on the Departments of Justice and Homeland Security.

Kraninger was accused by Democrats during her confirmation of helping implement “a policy by Trump that had separated children from their parents at the U.S.-Mexico border.” She refused to answer questions about her role.

Her first major act as CFPB director was to gut the Obama-era regulations on the payday loan industry. She eliminated the requirement for lenders to verify borrowers ability to repay and the limitation on the number of consecutive loans.

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