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President Donald Trump quietly ended a rule intended to protect low-income Americans from predatory high-interest payday loans this week. The move reverses a banner Obama-era initiative that required lenders to make sure that someone taking out a loan could afford to repay it.
The rule, which was instituted and then reversed by the Consumer Financial Protection Bureau (CFPB) would have held payday lenders to the same basic rules that banks must abide by, evaluating someone’s income and monthly payments before handing them a personal loan.
Democrats and other advocates say that the Trump administration is removing essential protections for vulnerable populations in the midst of a global pandemic and recession.
“By eliminating the ability-to-repay protections, the CFPB is making a grave error that leaves the 12 million Americans who use payday loans every year exposed to unaffordable payments at annual interest rates that average nearly 400%,” said Alex Horowitz, senior research officer with Pew Charitable Trusts’ consumer finance project.
Elizabeth Warren, who led the creation of the bureau following the 2008 financial crisis called the decision “appalling.”
The interest rates on payday loans average at 400% nationally but often exceed 600%, compared to personal loan rates that typically range between 10% and 28%. About 80% of people who take out payday loans aren’t able to pay them back within two weeks and have to take out another loan, perpetuating their indentureship to these loan companies, according to the CFPB. The industry also has a history of purposefully targeting communities of color.
In 2017, the Obama-appointed CFPB approved a rule to limit loans of this nature after conducting five years of research and hearing public comments. The rule was set to be implemented in 2018 but was delayed by Trump’s former CFPB head Mick Mulvaney and then overturned entirely by current-head Kathy Kraninger.
“Our actions today ensure that consumers have access to credit from a competitive marketplace, have the best information to make informed financial decisions, and retain key protections without hindering that access,” said Kraninger in a statement.
No new research was done by Kraninger to justify the rollback and some ex-CFPB staffers allege that some Trump appointees manipulated data around payday loans when proposing the rollback.
Mike Hodges, the CEO of Advance Financial, one of the country’s largest payday lenders has donated well over $1.25 million to Trump and said in an online webinar last year that his donations have given him access to administration officials where he pled his case to rollback the rule.
“I’ve gone to [Republican National Committee chair] Ronna McDaniel and said, ‘Ronna, I need help on something,’” Hodges said during the online seminar, hosted by industry consultant group Borrow Smart Compliance.
“She’s been able to call over to the White House and say, ‘Hey, we have one of our large givers. They need an audience,’” he said. “I have gone to the White House and … the White House has been helpful on this particular rule that we’re working on right now. In fact, it’s the White House’s financial policy stance to remove the rule and even the payments piece.”
Senator Sherrod Brown related the rule change directly to Hodges’ donations this week, saying that “the CFPB gave payday lenders exactly what they paid for by gutting a rule that would have protected American families from predatory loans that trap them in cycles of debt.”
Presidential candidate Joe Biden indicated in a recent tweet that if elected president he would fire Kraninger from her role. “Here’s my promise to you: I’ll appoint a director who will actually go after financial predators and protect consumers,” he wrote.
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