CFPB Payday Loans: Payday lender accused of stealing millions from clients. Trump’s CFPB is now letting them get away with it.
The Consumer Financial Protection Bureau (CFPB) is working hard against payday lenders accused of preying on low-income workers.
In the agency’s first report to Congress since Mick Mulvaney took the helm in November, the CFPB said it is lifting sanctions against NDG Financial Corp, a group of 21 companies that the agency, under President Obama , had accused of managing “a cross-border online payday loan program” in Canada and the United States.
“The program was primarily about granting 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 income,” the lawyers argued. of the CFPB in the complaint filed in the southern district. of New York in 2015.
The CFPB lawsuit had crept through the courts until Mulvaney took over the office. One of the main attorneys defending payday lenders was Steven Engel, who is now Assistant Attorney General at the US Department of Justice, and who was listed as an active lawyer in the case until November 14, the day after his swearing-in.
In February, the agency dismissed the charges against six defendants in the case, according to federal court records. The reason for the dismissal was not explained in the court’s petition, and the CFPB declined to answer Vox’s questions about the case.
Now the CFPB is “ending sanctions” against the remaining defendants, according to the agency’s latest report to Congress. A federal judge sanctioned the recalcitrant defendants in March with a default judgment against them, which held them accountable for the charges of unfair and deceptive business practices. The next step was to figure out how much they would pay in consumer damages and attorney fees – a step the CFPB suggests it won’t take anymore.
CFPB’s dismantling of the NDG case is the latest example of the bureau’s removal of payday loan companies accused of defrauding consumers – an industry that has donated more than $ 60,000 to past Mulvaney campaigns in Congress.
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 holding its annual conference at the Trump National Doral near Miami. – a rally which was greeted by demonstrators.
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 off debts they didn’t owe. Another payday lender, World Acceptance Group (a former donor to Mulvaney’s campaigns), announced this 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 that lawyers were about to bring against another payday lender, called National Credit Adjusters, and that Mulvaney was considering the possibility of shutting down the lawsuits against three others. The cases sought to restore $ 60 million to consumers for alleged abusive business practices.
The agency did not explain why the cases had been abandoned. And Mulvaney has been candid with members of Congress about the office’s new approach to protecting consumers. “The practice of regulating by enforcement has ceased,” he told members of the House Financial Services Committee on April 11.
Indeed, the CFPB has taken only one new coercive measure against financial companies since the takeover of Mulvaney, a massive fine against Wells Fargo was announced on Friday. But he went even further to help payday loan companies – dismissing cases and investigations already underway for no reason given.
Payday loans are terrible for consumers
The Consumer Financial Protection Bureau was established as part of the Dodd-Frank Act of 2010, which aimed to regulate banks and lenders in the aftermath of the financial crisis. One of the main reasons for the establishment of the quasi-independent agency was to protect consumers in the financial sector, especially consumers looking for mortgages, student loans and credit cards. The CFPB regulates the financial arena in other ways – for example, to ensure that lenders do not discriminate against certain clients (a mission which is also being canceled).
Payday loans have long been one of the most basic financial products available to consumers. These short term loans are usually offered to low income working people 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 works out to an annual percentage rate (APR) of $ 391 for a two-week loan. But the way they trap consumers in a cycle of debt is through their access to the customer’s bank account, either by check or ACH wire transfer.
On the worker’s payday, he cashes the check for the full loan amount and fees. That means the worker has even less money to pay next month’s bills, according to the Center for Responsible Lending.
[Payday lenders] withdraw the money even if there is enough money in the account to cover living expenses. Sometimes this results in overdrafts or insufficient fund charges. Sometimes this forces 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 traditional stores and online payday lenders. That year, about 90 percent of all loan charges came from consumers who borrowed seven or more times, the agency said, and 75 percent came from consumers who borrowed 10 or more times.
These numbers show how dependent payday lenders are to keep customers trapped and unable to pay their bills.
This business model has sparked so much controversy that at least 15 states and the District of Columbia have banned payday loans. And the Pentagon considered these loans so damaging to members of the military service that Congress banned companies from providing them to military personnel in 2006.
Now, under Mulvaney’s leadership, the CFPB is letting payday lenders continue these practices, much to the exasperation of consumer advocates. The head of the Center for Responsible Lending slammed Mulvaney after it was announced that the lawsuit against National Credit Adjusters and three other payday lenders was dropped.
“Mick Mulvaney is letting predatory payday lenders off the hook while they scam American consumers,” Diane Standaert, executive vice president of the Consumer Watch group, said in a statement. “Businesses… have a well-documented history of financial devastation to borrowers. If they have committed illegal actions, they should be held accountable. “
Mulvaney plans to relax rules for breakdown companies
Before Richard Cordray stepped down as director of CFPB, the agency had just finalized a rule to prevent payday lenders from giving money to people who can’t repay loans.
The regulation, known as payday, vehicle title, and certain high-cost installment, requires lenders to check if a borrower can repay the loan before doing so. The agency argued that 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 it planned to reconsider the rule, which is expected to come into effect in August. Mulvaney said in testimony to Congress that he wanted to “reconsider things that could create unnecessary burden or restrict consumer choice.”
Payday lenders pushed back on the rule, and on Monday they filed a lawsuit to block it before it went into effect.
The Community Financial Services Association of America, the largest commercial 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 do not. access to credit cards or bank loans. The Consumer Service Alliance of Texas has joined the business group in a lawsuit in federal district court in Austin.
Overall, 2018 is turning out to be a good year for payday lenders.
The shares of two of the biggest payday loan companies, EZ Corp and First Cash (the owners of EZ Pawn and Cash America) have skyrocketed since the start of the year: