We at Public Justice are no strangers to payday lending cases: we’ve spent years representing low-income people wronged by predatory lenders. This issue needs to be at the forefront of progressive economic justice action. Plainly, payday lending hurts poor people, profits off their struggles, and ensures their inability to attain financial stability. To ignore this issue is to ignore how the Trump administration is intentionally sabotaging those same “poor voters” that allegedly gave him his presidency.
On February 6th, Director of the Consumer Financial Protection Bureau Kathy Kraninger released a statement proposing a rollback of a regulation put in place to protect consumers from predatory payday lending. The regulation, intended to go into effect in August and originally put into place by former CFPB Director Richard Cordray on his way out, would require lenders to ensure that consumers would be able to repay the loans before being eligible to receive them. Under Kraninger’s proposal, the part of the rule that forces lenders to make sure borrowers have the capacity to repay their loan will be rescinded.
Payday lending is a system long criticized by consumer watchdogs for the debt cycles it forces low-income people into. 12 million people are reported to take out payday loans each year, and lenders target people living in poverty and financial instability. Life is expensive, and it’s normal for unexpected costs to catch us off guard. Medical emergencies, changes in job security, and family problems are all normal and costly unexpected responsibilities. For people experiencing financial instability, payday loans can look like a quick and easy way to afford things they simply don’t have the money to pay off. Payday loans are also frequently pitched as being “short-term” loans, due in a matter of weeks, which leads potential borrowers to believe their debt will be short-term.
However, paying $50 or $60 upfront to cover a $400 loan isn’t as simple as just the initial payment. If someone doesn’t have $400 laying around in the first place, it’s unlikely they’ll suddenly have it the next month to pay the loan off in total – basically ensuring they will have to take out more loans to cover the cost of the initial loan they couldn’t afford, and forcing them to spend more money than they needed in the first place and putting them in debt for on average five months (when they were told up front it would take two weeks). Payday loans have interest rates of 300% and more (one of our clients here at Public Justice had a payday loan with an interest rate of more than 1300%!), causing borrowers who might not have known what they were getting themselves into to be in even more debt than if they had taken alternate routes in the first place. Lenders rely on misleading information and the panic people in need of fast money find themselves in to profit off them.
The Cordray-era regulation might seem like a common sense policy for lenders and consumers: it increases the likelihood of lenders getting paid back, while ensuring consumers avoid costly predatory lending schemes that can destroy their livelihoods. Why, then, would a consumer protection organization want to reverse such a reasonable policy? However, this assumes that the role of the CFPB under the Trump administration is the same as its role when created following the financial crash of 2008: a consumer watchdog chasing after companies taking advantage of low-income Americans. Unfortunately, the current leadership of the Bureau sees its role differently – they often seem more interested in protecting lenders than consumers.
Like the policies of her interim predecessor, Mick Mulvaney, Kraninger’s proposal is insulating corporations against accountability. Kraninger couldn’t follow in Mulvaney’s footsteps any more closely: on the date of an important deadline for the regulation in January 2018, Mulvaney announced his intention to revisit the rule. As we pointed out at the time, payday lending laws that hold corporations accountable are favored by Trump’s own supporters, with voters in North Dakota on Election Day 2016 voting for both Trump and a payday lending regulation, capping the amount of interest lenders can charge customers.
The biggest fans (unsurprisingly) of Kraninger’s proposal are industry officials. Last year, industry groups sued the CFPB over the rules, stating they were “paternalistic” to low-income people by making lenders take due diligence to make sure borrowers have the capacity to pay back the loans (which is a rich comment from people who are making money off low income people in strife). Mulvaney showed a clear allegiance to industry officials over consumers. Under Mulvaney’s tenure, the CFPB dropped lawsuits against predatory lenders, including one lender who made significant contributions to Mulvaney’s congressional campaigns. Mulvaney presented this direction as “a revised mission and vision of the bureau.” We called bullshit. It’s not a revision, it’s a dismantling, and this move by Kraninger is just more of the same.
What can you do about this? For one, you should call your representative. You have a more direct route to make your voice heard, too. The comment period on this issue will be open for three months. Let Kraninger, and the new industry allies running the CFPB, know that even if they’ve stopped caring about the needs of consumers, we haven’t. Find more information about how to comment here.