CFPB Payday Loans: Payday lender accused of stealing millions from customers. 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 has announced that it is dropping sanctions against NDG Financial Corp, a group of 21 companies that the agency, under President Obama, has had accused of running “a cross-border online payday loan programIn Canada and the United States.
“The ploy was primarily to grant loans to American consumers in violation of state usury laws and then use unfair, deceptive and abusive practices to collect the loans and profit from the income,” the attorneys said. 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 in 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.
From now on, the CFPB is “end the sanctionsAgainst 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 determine how much they would pay in consumer damages and attorney fees – a step that the CFPB suggest it won’t take anymore.
CFPB’s dismantling of NDG case is the latest example of payday loan companies being pulled from the office accused of defrauding consumers – an industry that has donated over $ 60,000 to Mulvaney’s past 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 holds its annual conference at the Trump National Doral near Miami – a rally that was greeted by protesters.
A new day for payday lenders
In January, the CFPB dropped another trial 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 the Mulvaney 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 also dropped a lawsuit lawyers were set to bring against another payday lender, called National Credit Adjusters, and that Mulvaney was weighing the possibility of stopping the lawsuits against three others. These 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 frank 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 only taken one new coercive action against financial companies since the Mulvaney takeover, a massive fine against Wells Fargo announced 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 creation 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 by other means, for example to ensure that lenders do not discriminate against certain clients (a mission which is also canceled).
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 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 equates to one 391 annual percentage rate (APR) 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. This means that 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.
CFPB estimates that 12 million Americans used payday loans in 2013, which includes traditional stores and online payday lenders. That year, about 90% of all loan charges came from consumers who borrowed seven or more times, according to the agency, and 75 percent were from consumers who borrowed 10 or more times.
These numbers show how dependent payday lenders are to keep customers trapped in debt 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 regarded these loans as if harmful to the military that Congress banned companies from providing them to military personnel in 2006.
Now, under Mulvaney’s leadership, the CFPB lets 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 lets predatory payday lenders off the hook while they scam American consumers,” Diane Standaert, executive vice president of the Consumer Watch Group, said in a press release. “Businesses… have a well-documented history of financial devastation to borrowers. If they 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 he plans to reconsider the rule, which is expected to go into effect in August. Mulvaney mentionned during a testimony in Congress that the wanted “to reconsider the elements which can create an unnecessary burden or restrict the choice of the consumer”.
Payday lenders pushed back 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 Texas Consumer Service Alliance joined the trade 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: