Last fall, after five years of study and a review of more than a million comments from interested parties, the Consumer Financial Protection Bureau finalized a rule requiring payday lenders to make sure borrowers can afford to repay loans within 30 days before lenders can hand over the money. Now, after less than two months as the bureau’s part-time director, Mick Mulvaney is considering dumping the rule.
Mulvaney, whose day job is President Donald Trump’s budget director, once called the CFPB a “sad, sick joke.” What’s sad and sick is that the Trump administration thinks predatory lenders need more protection than consumers.
To be sure, the CFPB rule — which wouldn’t take effect until August 2019 — would put a major dent in the $36.5 billion short-term credit industry. The pre-Mulvaney bureau under Obama appointee Richard Cordray estimated that loan volume would fall by two-thirds. Many of the 16,000 payday and title loan stores across 35 states could be forced to close. Their business model relies on the perpetuation of debt traps created when loan repayment periods are extended, along with higher interest, to cover the borrower’s inability to pay.
In Missouri, payday-loan interest rates can run as high as 452 percent per year. To dodge such regulation, payday lenders in Missouri increasingly have switched to 120-day “installment loans” that can carry large origination fees and have no interest caps.
The industry’s supporters say payday lenders are often the only source of credit for desperate consumers coping with financial emergencies. That argument would be more persuasive if the payday industry didn’t spend so much on political donations to block better alternatives — a 36 percent interest cap, for example — from enactment.
The industry spent $2.8 million on congressional races in the 2016 election cycle, according to the Center for Responsive Politics. Mulvaney, then a House member from South Carolina, received $31,700 of it.
The payday industry also benefits from the political clout bought by major U.S. banks, which finance eight major payday lenders. Big banks like Wells Fargo can borrow money for 0.5 percent at the Fed’s discount window and then lend it to companies that charge 455 percent interest.
Mulvaney’s plans embody the real crisis of the Trump presidency: While attention is focused on the president’s outrage du jour, his appointees throughout the federal government are working diligently for the privileged against the interests of people who need help the most.
FROM AN EDITORIAL IN THE ST. LOUIS POST-DISPATCH