The consumer protection bureau is having a Trump-induced identity crisis

The consumer protection bureau is having a Trump-induced identity crisis
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The Consumer Financial Protection Bureau (CFPB) needs a new name under President TrumpDonald John TrumpBiden, Sanders lead field in Iowa poll The Memo: Cohen fans flames around Trump Memo Comey used to brief Trump on dossier released: report MORE’s administration.

Contrary to its name — and to its strategic plan — today there is dwindling protection for consumers or their finances. Thanks to President Trump’s appointee to lead the agency, Director Mick MulvaneyJohn (Mick) Michael MulvaneyGOP lawmaker jokes about Trump's next Interior chief: It's going to be Mulvaney Interior chief Zinke to leave administration Mulvaney will stay on as White House budget chief MORE, enforcement and regulations are being rolled back in ways that benefit the very businesses that the agency was conceived to oversee. How can the CFPB, under this leadership, “ensure that consumer financial products and services are fair” as outlined in its own strategic plan?

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And now, with a series of requests for information (RFI) on its core functions and authorities, it seems that the CFPB is seeking any reason at all to justify abandoning its mission to protect consumers.

This shift in direction is already showing its ugly head. In just over a month since taking over the CFPB, Mulvaney has quickly put a stop to sensible regulations like those that prevent lenders from discriminating against minorities by charging higher interest rates and has retreated from an investigation into Equifax after its data breach put the personal financial information of millions of Americans at risk.

Now he’s looking to reexamine the CFPB’s regulations that protect consumers from payday lenders — an industry that exists by making profit off of hardworking Americans when they are financially desperate.

This industry claims that payday loans are a solution to a market need for short-term loans to pay for unexpected expenses but the reality is that they are simply not the solution that they are marketed as — they are debt traps.

According to The Pew Charitable Trusts, 12 million Americans take out payday loans each year, spending $9 billion on fees. Most of these borrowers are low to moderate income single parents who make less than $40,000 and they are usually not taking the loan to pay for an emergency expense like car repair or medical care but rather everyday living expenses like rent, bills, or food. The average payday loan requires a repayment of 36 percent borrower’s paycheck but most can’t afford to pay more than 5 percent.

Often they have no choice but to take out another loan — and the cycle of debt begins again. This means the average payday loan borrower is paying about $520 in fees to repeatedly borrow $375 — and is in debt for about five months of the year.

Is it fair to issue a loan to someone who has no ability to repay it? Someone who you know will only have to come back for another loan? No, that is the very definition of predatory lending — taking advantage of someone’s desperation in order to make a profit. That is why, back in 2012, the CFPB began working on a rule to address this problem. While payday lending is regulated differently state to state, the devastating impact it has on consumers is consistent across the country and is exactly the type of regulation that the CFPB should be engaging in.  

As a consumer advocate and a consumer myself, I am very alarmed. Luckily for those of us here in New York City, we have added protections for consumers and authority over businesses that other cities in the country lack. We are using all of these tools to protect New Yorkers —  especially those struggling to make ends meet — from predatory lending.

In 2015, for example, we secured $1 million in consumer restitution for payday loans that debt collectors illegally collected on — loans that, by and large, were made to financially distressed New Yorkers. However, even with augmented City regulations for debt collectors and a statewide prohibition on payday lending, illegal payday lending persists. Any reconsideration of payday lending rules at the federal level will only magnify the issue of predatory lending in New York and elsewhere.

Weakening federal regulations do have consequences for local laws nationwide. That is why I wrote the CFPB last October asking then-Director Cordray to institute strict guidelines on payday lending. Unscrupulous actors leverage any and all opportunities to exploit those in need and we can expect that payday lenders will be emboldened by any dampening of federal regulations on payday lenders to exploit New York consumers, despite of local laws and regulations designed to inhibit such behavior. Without a backstop of federal guidelines and strict penalties for breaches of the law, unlawful businesses and individuals will continue to creatively engage consumers under the guise of providing financial access.

It could take months for the CFPB to legally repeal the rule but in the meantime, it can decide not to enforce it. Already, the CFPB has ended cases against payday lending companies that were under investigation, including one that was charging interest rates of close to 1,000 percent and one that had made donations to Mulvaney’s congressional campaigns. It is clear that today’s CFPB is aggressively protecting the interests of payday lenders, not consumers. These policy changes — and any effort to repeal or weaken the rule — are a direct contradiction of the CFPB’s own goals.

As more Americans struggle with income volatility and a lack of savings, we need sound policymaking and regulatory oversight that open up opportunities for safe lending and savings solutions. I urge every consumer and consumer advocate to bombard the CFPB with evidence in response to their series of RFIs to show how essential a real federal watchdog is for consumers.

Lorelei Salas is the commissioner of the NYC Department of Consumer Affairs, which houses the City’s offices of Financial Empowerment. Learn more at nyc.gov/dca.