The Consumer Financial Protection Bureau (CFPB) is reassuring payday lenders accused of preying on low-income workers.
In the first of the agency report to Congress Since Mick Mulvaney took the helm in November, the CFPB has said it is dropping sanctions against NDG Financial Corp, a group of 21 companies that the agency, under President Obama, had accused of running”a cross-border online payday loan systemin Canada and the United States.
“The scheme consisted primarily of making loans to American consumers in violation of state usury laws, and then using unfair, deceptive, and abusive practices to collect the loans and profit from the revenue,” the lawsuits argued. CFPB lawyers. in the complaint filed in the Southern District of New York in 2015.
The CFPB lawsuit had worked its way through the courts until Mulvaney took over the office. One of the lead attorneys defending the payday lenders was Steven Engel, who is now an assistant attorney general at the US Department of Justice, and who was listed as active counsel in the case until November 14, the day after he was killed. taking the oath.
In February, the agency dismissed charges against six defendants in the case, according to federal court records. The reason for the dismissal was not explained in the court’s motion, and the CFPB declined to answer Vox’s questions about the case.
From now on, the CFPB is “end the sanctionsagainst the remaining defendants, according to the agency’s latest report to Congress. A federal judge had sanctioned the uncooperative defendants in March by issuing a default judgment against them, which held them liable on charges of unfair and deceptive marketing practices. The next step was to determine how much they would pay in consumer damages and attorney fees – a step that the CFPB suggests it won’t take anymore.
The CFPB’s dismantling of the case against NDG is the latest example of the bureau’s pushback from payday loan companies accused of defrauding consumers – an industry that has donated over $60,000 Mulvaney’s recent congressional campaigns.
The industry also appears to be currying favor with the Trump administration in another way: This week, the Community Financial Services Association of America, which represents payday lenders, is holds its annual conference at Trump National Doral near Miami – a rally that was greeted by protesters.
A new day for payday lenders
In January, the CFPB dropped another lawsuit against four online payday lenders who allegedly stole millions of dollars from consumers’ bank accounts to pay debts they did not owe. Another payday lender, World Acceptance Group (a former donor to Mulvaney’s campaigns), announced that month that the CFPB had dropped its investigation into the South Carolina company.
In March, a Reuters investigation found that the agency had also dropped a lawsuit lawyers were preparing to file against another payday lender, called National Credit Adjusters, and that Mulvaney was considering the possibility of stopping lawsuits against three others. These cases sought to return $60 million to consumers for alleged abusive marketing practices.
The agency did not explain why the cases were dropped. And Mulvaney has been candid with members of Congress about the bureau’s new approach to protecting consumers. “The Office’s practice of regulating through enforcement has ceased,” he told members of the House Financial Services Committee on April 11.
Indeed, the CFPB has taken only one new enforcement action against financial firms since Mulvaney took office, a big fine against Wells Fargo announced Friday. But he went even further to help payday loan companies — dismissing cases and investigations that were already underway, for no stated reason.
Payday loans are terrible for consumers
The Consumer Financial Protection Bureau was created as part of the Dodd-Frank Act of 2010, which sought to regulate banks and lenders in the wake of the financial crisis. One of the main reasons for creating the quasi-independent agency was to protect consumers in the financial sector, especially those looking for mortgages, student loans and credit cards. The CFPB regulates the financial sphere in other ways – for example, to ensure that lenders do not discriminate against certain customers (a mission which is also cancelled).
Payday loans have long been one of the most basic financial products available to consumers. These short-term loans are generally offered to low-income workers who have no credit or who have bad credit. It is basically a payday advance when someone needs money to pay a bill.
But the costs are astronomical. For example, most payday loans charge a percentage or dollar amount for every $100 borrowed. According to the CFPB, $15 for every $100 is common and equals one 391 Annual Percentage Rate (APR) for a two-week loan. But the way they trap consumers in a debt cycle is through their access to the customer’s bank account, either by check or ACH transfer.
On the worker’s payday, he cashes the check for the full amount of the loan and fees. This means that the worker has even less money to pay next month’s bills, according to the Center for Responsible Credit.
[Payday lenders] withdraw money whether or not there is enough money in the account to cover living expenses. Sometimes this results in insufficient funds charges or overdrafts. Sometimes this requires the client to take out another loan to cover living expenses.
The CFPB estimates that 12 million Americans used payday loans in 2013, which includes brick-and-mortar stores and online payday lenders. That year, about 90% of all loan fees came from consumers who borrowed seven times or more, depending on the agencyand 75% came from consumers who borrowed 10 times or more.
These numbers show how dependent payday lenders are on keeping customers trapped in debt and unable to pay their bills.
This business model has caused so much controversy that at least 15 states and the District of Columbia have banned payday loans. And the Pentagon considered these loans as if detrimental to military service members that Congress banned companies from supplying them to military personnel in 2006.
Now, under Mulvaney’s leadership, the CFPB is letting payday lenders continue these practices, much to the chagrin of consumer advocates. The head of the Center for Responsible Lending slammed Mulvaney after news broke that he was dropping the lawsuit against National Credit Adjusters and three other payday lenders.
“Mick Mulvaney is letting predatory payday lenders off the hook while they rip off American consumers,” said Diane Standaert, executive vice president of the consumer watchdog group, said in a press release. “Companies…have a well-documented history of financial devastation of borrowers. If they have committed illegal acts, they should be held accountable.
Mulvaney plans to relax rules for tow companies
Before Richard Cordray left his post as director of the CFPB, the agency had just finalized a rule to prevent payday lenders from giving money to people who cannot repay the loans.
The settlement, known as Payday, Vehicle Title and Certain High-Cost Aversement, requires lenders to check whether a borrower can repay the loan before making it. The agency argued the rule would still give consumers access to short-term loans, as they could still take out six payday loans a year, regardless of their ability to repay the money. Lenders would only have to check the likelihood of a customer repaying their debt when they take out a seventh or more loan.
In January, the CFPB issued a statement saying he plans to reconsider the rule, which is expected to come into effect in August. Mulvaney noted in congressional testimony, they wanted to “reconsider items that might create unnecessary burden or restrict consumer choice.”
Payday lenders pushed back against the rule, and on Monday they filed a lawsuit to block it before it takes effect.
Community Financial Services Association of America, the largest trade group of payday lenders, says the rule would “virtually eliminate” their business model, which provides short-term loans to millions of low-income consumers who lack access credit cards or bank loans. The Consumer Service Alliance of Texas joined the trade group in the lawsuit filed in federal district court in Austin.
All in all, 2018 is shaping up to be a good year for payday lenders.
Shares of two of the biggest payday loan companies, EZ Corp and First Cash (the owners of EZ Pawn and Cash America) have soared since the start of the year: