by Wade Rathke
New Orleans We can count the days until we pray that’s it is over, but until then the drumbeat of woe is bound to continue. The gutted Consumer Financial Protection Bureau proved that it really might need a name change as it announced the shelving of Obama-era reforms to payday lending which will exploit lower income consumers rather than protect them.
The Obama rule wasn’t perfect, but it was progress. Nothing had been done about the usurious interest rates for example, but it had taken positive steps.
There were limits proposed on the number of loans borrowers could take sequentially. Such limits are critical in blocking the predatory nature of payday lending. They require loans to be on a common database so that desperate low-income borrowers are not robbing Peter to pay Paul for example. A study ACORN commissioned by academics in Canada where regulating payday lending has been a major campaign of ours for the last seventeen years found that borrowers were caught in a debt trap cycle for eighteen months or more to resolve the first loan as interests, fees, and penalties pyramided throughout the period.
The second key advance of the Obama rules required an affordability test before the loans were made. Whether payday lending, subprime lending, basic mortgages or whatever the product, the baseline for any loan to be fair to the consumer has to include an assessment of affordability.
The Trump team eviscerated both of these reforms to greenlight the industry in its continued efforts to exploit low-and-moderate income families. All this despite CFPB whistleblowers that had documented a stacked house research effort that had been fabricated to a predetermined aim of gutting the Obama regulations.
The industry reportedly collects $30 billion in fees from this predation, making it easy for them to drop $12 million in campaign contributions to Republican lawmakers to grease the wheels. The Community Financial Services Association of America, their trade association, is doing the happy dance because its rip-offs of lower income borrowers will be able to continue unabated.
Their only claim is that they supply last ditch credit at exorbitant prices to desperate families. Everyone not on the take from the industry, knows that there are many better ways to provide credit that don’t trap families in permanent poverty.