By Jeffrey Freedman
The future of the Consumer Financial Protection Bureau is shaky. Created in 2010 under the Dodd-Frank financial reform law, the CFPB has stood up against predatory lending — including companies providing “payday loans” to approximately 12 million Americans annually. Richard Corday, now former director of the CFPB, imposed fines and filed lawsuits against payday lenders, which offer short-term, high-interest loans to the most vulnerable members of our society.
Payday lenders prey on workers earning less than $40,000 per year and who have poor credit. Those who use payday loans quickly get into a downward spiral of debt that can often ends in bankruptcy.
How does a payday loan work? Say your car breaks and you need $300 for repairs. You go to a payday lender and write a post-dated check for $340, the loan plus a $40 fee. You get $300 for 14 days, then you either pay $340 in cash, the lender deposits the check, or you make a partial payment and extend the loan for another fee. Payday lenders charge anywhere from 400 APR (annual percentage rate) up to 5000 APR.
Since the CFPB began operations it has returned $11.7 billion to consumers and created rules to protect them. The payday lending industry has felt the pressure. According to the Center for Financial Services, annual payday lending dropped from $9.2 billion in 2012 to $5.3 billion in 2017. A top payday lender laid off 300 workers last year and is now planning to close 100 stores. But payday lenders can take hope — there’s a new regime in control.
Mick Mulvaney, White House budget director; former congressman, South Carolina; and the new acting head of the CFPB, is on their side. Mulvaney recently released a mission statement committing to deregulation favoring businesses, not consumers. Now that the fox –who received nearly $63,000 for his congressional campaigns from payday lenders) is in charge of the henhouse – an investigation against payday lender World Acceptance Corporation has been dropped and a lawsuit against payday lenders in Kansas ended.
H.R. 10, a bill reversing many protections enacted in Dodd-Frank, has passed out of the House and is being considered by the Senate Committee on Banking, Housing and Urban Affairs. If this bill passes, and if the CFPB stops protecting consumers, the working poor who supported Trump will be among the most affected. Inevitably, more will appear in bankruptcy court, seeking relief from debt loads created by unreasonable fines and interest rates charged by predatory lenders and payday loans. Congress needs to stop H.R. 10 and protect the CFPB from leaders like Mr. Mulvaney.
Jeffrey Freedman has handled bankruptcy and related consumer legal issues since 1980. He is a founding member of the National Association of Consumer Bankruptcy Attorneys.