Trump administration just ousted payday lending regulations
Jan. 16 was supposed to be reckoning day for a notorious predatory lending industry, when a rule by the Obama administration’s consumer watchdog agency finally began to curb a business that robs the poor. But on the day the new regulations were due to go into effect, the new head of Trump’s White House agency decided to suspend the rule indefinitely, and soon announced a “review” of all of the agency’s operations, signaling a change in mission of the protection of the main street. to pamper Wall Street.
Last year, the Consumer Financial Protection Bureau (CFPB) developed a much-anticipated rule on payday loans – the industry offering short-term loans that exploit poor consumers – to crack down on fraud by forcing lenders to “determine” reasonably that the consumer has the capacity to repay the loan ”(rather than defaulting or subjecting himself to even more abusive terms). The rule, led by the Obama administration and widely supported by consumers and public interest groups, allowed exemptions for smaller-scale loans by requiring lenders to adhere to certain consumer protection provisions rather than go through the determination of the “ability to pay”.
The rule would also target longer-term loans with an annual interest rate of 36% or more, preventing lenders from directly withdrawing money from a consumer’s account, without the borrower’s explicit consent, if they did not reimburse twice in a row. Any direct withdrawal from a consumer’s account would also require standard advance notification. Common sense was to reduce the industry’s annual revenues by two-thirds.
The suspension of the rule signals a new direction for the CFPB, which is now led by Mick Mulvaney, a longtime Trump pal and prominent Wall Street warrior who has a record of fierce protection of financiers, not consumers. Mulvaney immediately followed the removal of the rule by launching an internal review of the agency, which watch groups see as another step towards overthrowing the agency’s founding mission. Along with Trump’s anti-Obama vendetta, Mulvaney is set to dismantle the agency’s regulatory framework, which prior to his tenure aimed to promote modest but significant limits on the operating power of the financial sector. And its first gesture is rightly to roll back a major instrument of fraud and usury that targets the poorest consumers.
According to Amy Traub of the Demos think tank, “many advocates fear that this is the start of a larger effort to undo the CFPB’s successful consumer protection work.” The payday lending industry has historically attacked poor and “underbanked” communities, marketing short-term loans at astronomically high interest rates. Payday loans are traded on predatory debt plans, as borrowers slide into a cycle of repeated debt distress and financial crisis. Historically, the industry has disproportionately targeted extremely poor, black, recently divorced or separated consumers renting their homes.
The “cashed” windows that line the main streets of poor communities across the country are largely tied to large banking monopolies, sucking assets from poor communities to fuel multinational capital flows. According to the Center for Responsible Lending (CRL), average interest rates for payday loans are nearly 400 percent APR. The CFPB rule was long overdue, after five years of rule-making deliberations, during which financial industry lobbyists complained that it would ruin a system that was the only route to credit for $ 30 million. of consumers. But activists say that instead of being ‘served’ by deceptive financial predation, underbanked communities really need sustainable financial infrastructure that provides transparent and ethical loans structured for repayment, not usury. . Many community groups have promoted nonprofit credit unions and other community banking institutions, such as public banks and government-run postal banking services, which enable poor households to build up assets at low cost. fair conditions, and attempt to establish new industry standards based on fair principles. – loan principles.
The rule was quite limited, compared to the more stringent regulations that many states have enacted. The CFPB only required lenders to carry out “reasonable” checks on the financial capacity of consumers and to avoid the worst forms of financial abuse. Currently, about 38 states allow some form of payday lending, but some, such as New York, New Jersey, North Carolina, and Arizona, have banned or restricted the practice.
Traub points out that stricter state-level regulations will remain in place, as repealing the federal rule would not automatically prevail over existing state and local regulations. Then again, many advocates fear the industry is now doubling down on its ongoing battle to weaken state-level protections.
“If this legislative session is like the previous session, payday lenders are likely to push more of their dangerous bills into more states,” CRL state policy director Diane Standaert said in a statement. “States, as they all did last year, must reject these efforts by payday lenders to increase the types of predatory products they sell” by adopting and maintaining existing price caps.
While Trump’s overturning of the rule is an obvious direct attack on regulation, it is predictable. Mulvaney – who has received more than $ 62,000 in political contributions from the payday loan industry in past positions and whose appointment faces an ongoing legal challenge by his Obama-selected predecessor – has garnered thousands of contributions around the same time he issued a letter protesting the Obama administration in 2016, warning that restricting payday lenders would unfairly limit “access to credit” for poor borrowers. He also opposed legislation to protect households on military bases from predatory lenders.
While the White House’s rollback does not directly affect state regulations, Andy Morrison of New Economy Project, a New York-based financial justice organization, says:
The exponential growth of payday loans over the past few decades can be attributed to federal financial deregulation in the 1970s and 1980s. The very reason Trump installed Mulvaney… is because he is a deregulatory…. At the very least, this latest move is another nod to financial predators that it is the open season for the poor, working families and communities of color.
The Trump administration’s mania for deregulation is progressing so rapidly that it can sometimes be difficult to keep up with. Mulvaney is just another foot soldier in Trump’s ideological agenda, in an ongoing campaign to dismantle regulations and fund agencies to attack financial guarantees, civil rights and labor protections across government.