Under Trump’s nomination, consumer protection agency helps payday lenders
Payday lenders seem to have a powerful friend in Washington.
Former Republican Representative Mick Mulvaney is the acting head of the Consumer Financial Protection Bureau. He was appointed by President Trump amid an ongoing power struggle for control of the office.
Watch groups are rising up because, under Mulvaney, the CFPB suspended a rule that would restrict payday lenders and their high-interest loans. The agency also dropped a lawsuit against online lenders charging 900% interest rates. Critics say the measures are a reward for campaign contributions to Mulvaney when he was a congressman representing South Carolina.
Payday lenders say that if you need the cash fast, they are providing a valuable service. And that’s what some shoppers feel at the Advance America storefront in a small mall in Pawtucket, RI.
One of those customers is auto mechanic Rafael Mercedes, who says he first came to the branch when he needed parts to fix his own car. “My car broke down and I needed the money right away,” he says.
Mercedes says he borrowed $ 450 and had to pay $ 45 in interest on the two-week loan. To get the loan, he left a check with the lender to cash on the day he was paid by his employer – hence the term payday loan.
Borrowing the same amount of money on a credit card for two weeks would cost nothing if he paid it off. But Mercedes says he has bad credit and no longer uses credit cards because he had bigger debt problems at the time.
“I would rather not fall back into this big mess,” he said. “The people here are nice, and I don’t know, it just works for me.”
And if that means someone like Mercedes can get a car repair needed to get to work when money is tight, what’s the problem?
Christopher Peterson, a law professor at the University of Utah, explains that the problem is that “one payday loan often results in another payday loan and so on in a debt trap.”
“The average borrower takes out eight of these loans per year,” he says. “Some people take out nine, 10, 15 or more loans a year. These costs can really add up.”
Some people at the Advance America branch were clearly repeat customers. Peterson says that by getting payday loans paycheck after paycheck, you are paying an annual interest rate of 200-300% – sometimes even higher depending on state regulations. And, he says, lenders who take money directly from people’s checking accounts can trigger overdraft fees and other costs and problems.
Peterson worked for the Department of Defense helping to draft regulations under the Military Lending Act, which prohibited such high interest payday loans for service members.
“These loans were deemed by Congress to be so dangerous that they were banned for the military, and it was George W. Bush who enacted them,” he said of the former Republican president .
Peterson was also an advisor to the Consumer Financial Protection Bureau when it developed its rule on payday loans for the rest of the country.
The rule does not go as far as the military version. But it does require lenders to make sure people can afford to repay the loans. And it was about to start taking effect this month.
Mike Calhoun, chairman of the Center for Responsible Lending, is among the watchdogs of consumers who are upset that Trump recently picked Mulvaney, a former Republican congressman and current White House budget manager, to head the office of the consumption.
Mulvaney once introduced legislation to abolish the office and called the CFPB a “sick and sad” joke. He also accepted money from payday lenders.
And now that he runs the agency, the CFPB has suspended that rule, saying it will take action to reconsider the measure. The CFPB also dropped a lawsuit against online lenders charging 900% interest rates. And he just dropped an investigation into a lender who directly contributed to Mulvaney’s campaign.
“It’s outrageous,” Calhoun says. “Mulvaney took over $ 60,000 in campaign money from payday lenders when he was in Congress. He’s deep in the pocket of payday lenders and he does everything he can to help them. “
Mulvaney declined interview requests. But he has said in the past that he doesn’t think campaign contributions present a conflict of interest to him.
As you might expect, payday lenders are happy to see the rule suspended. Jamie Fulmer of Advance America says the rule would be too onerous to implement for such small loans. (Many states cap the total amount of a payday loan at $ 500.) And he says that would cut loans for his clients who need them.
“This is the classic example of someone from Washington walking in and saying, ‘Hey, we’re here to help you and we’re here to tell you what’s best for you and your family and we’re going to decide what to do with it. you ‘”said Fulmer.
Calhoun says that’s not true because under the rule, lenders can make up to six loans per year to the same person in the same way they currently do. Loans should simply be spaced 30 days apart.
If a client begins to take out a payday loan after a payday loan beyond, the rule would go into effect. Although Calhoun says he’s worried that Mulvaney is running the consumer office, the rule might never go into effect at all.
Calhoun says if Mulvaney decides to abolish the payday loan rule, his nonprofit and others will sue to try to preserve it.
ARI SHAPIRO, HTE:
Payday lenders seem to have a sympathetic ear in an unexpected part of Washington, the acting head of the Consumer Financial Protection Bureau, former Republican Congressman Mick Mulvaney. He is wielding a rule that would have restricted payday lenders and their high interest rate loans. Chris Arnold reports from NPR.
CHRIS ARNOLD, BYLINE: Payday lenders say if you need the cash fast, they provide a valuable service. And that’s also what some shoppers feel in Advance America storefronts in a small mall in Pawtucket, RI.
RAFAEL MERCEDES: My name is Rafael Mercedes. I work on cars for a living.
ARNOLD: Your name is Mercedes, and you work on cars.
ARNOLD: It’s probably not the first time someone has said that.
MERCEDES: No, it is not. It’s hilarious.
ARNOLD: Mercedes said he came here for the first time when he needed parts to fix his own car.
MERCEDES: My car broke down and I needed the money right away.
ARNOLD: He says he borrowed $ 450 and had to pay $ 45 in interest on the two week loan. To obtain it, he left a check with the lender to cash on the day he was paid by his employer. This is why they are called payday loans. Now a credit card, if you paid it off on time, wouldn’t cost a thing. But Mercedes says he has bad credit and no longer uses credit cards because he had bigger debt problems at the time.
MERCEDES: I would prefer not to be in this big mess anymore. The people here are nice, and I don’t know. It just works for me.
ARNOLD: And if that means you can get your car fixed and get to work without losing your job, what’s the problem?
CHRISTOPHER PETERSON: The problem is that one payday loan often leads to another payday loan and so on in a debt trap.
ARNOLD: Christopher Peterson is a professor of law at the University of Utah.
PETERSON: The average borrower takes eight of these loans a year, and that’s the average borrower. Some take out 9, 10, 15 or more loans per year. These costs can really add up.
ARNOLD: Some of the people at the Advance America branch were clearly repeat customers. Peterson says that by getting these paycheck after paycheck loans, you are paying an annual interest rate of around 300%. Sometimes it’s even more. Peterson worked for the Department of Defense helping to draft regulations banning these high interest payday loans for the military.
PETERSON: These loans were deemed by Congress to be so dangerous that they were barred from the military. And it was George W. Bush who signed it.
ARNOLD: The Consumer Financial Protection Bureau has developed its own payday rule for the rest of the country. It doesn’t go as far as the military version, but it does force lenders to make sure people can afford to repay the loans. And it was about to start going into effect this month, but now …
MIKE CALHOUN: Now appointed by Trump to the consumer protection agency – he suspended the rule.
ARNOLD: Mike Calhoun is the president of the Center for Responsible Lending. Consumer watchdogs like him are unhappy that President Trump recently picked former Republican Congressman Mick Mulvaney to head the Office of Consumer Affairs. As a congressman, Mulvaney proposed to abolish the office altogether and he accepted campaign contributions from payday lenders. Now that he’s running the office, he’s put that rule on hold, saying it would be, in quotes, “reconsidered.” And the CFPB has dropped an investigation into a lender who donated to Mulvaney’s campaign.
CALHOUN: It’s outrageous. Mulvaney is deep in the pocket of payday lenders, and he does everything he can to help them.
ARNOLD: Mulvaney declined interview requests, but he has said in the past that he doesn’t think campaign contributions present a conflict of interest to him. Payday lenders, as you might expect, are happy to see the rule suspended. Jamie Fulmer is with Advance America. He says the rule would cut loans for his clients who need them.
JAMIE FULMER: That’s the classic example of, you know, someone from Washington walking in and saying, hey, we’re here to help you, and we’re here to tell you what’s best for you and your business. family ; and we will decide for you.
ARNOLD: Calhoun disputes that. He says that in fact, lenders could still make up to six loans a year, basically the same way they do now. After that, the rule would come into effect. But he fears that with Mulvaney who heads the Office of Consumer Affairs, the rule will never apply at all. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.