Keep industry insiders out of the payday loan rulemaking process

Keep industry insiders out of the payday loan rulemaking process
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The Consumer Financial Protection Bureau (CFPB) has been an effective watchdog for consumers. However, since President TrumpDonald John TrumpConway defends herself against Hatch Act allegations amid threat of subpoena How to defuse Gulf tensions and avoid war with Iran Trump says 'stubborn child' Fed 'blew it' by not cutting rates MORE was elected, it has increasingly been protecting financial predators rather than financial consumers.  

The CFPB’s recent announcement that it was overhauling the payday lending rule is the latest example of that transformation. Better Markets recently detailed how the CFPB’s proposal would create a debtors’ prison without bars for millions of Americans who were trapped in an endless cycle of payday loans that they could not repay. 

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That’s because, as the CFPB admitted, two-thirds of payday lender customers could not afford to repay the loan when they received it.

Thus, as the CFPB also admitted, if the “ability to repay” test was not eliminated as it is proposing, then nine out of every 10 payday loan storefronts would shut down. In other words, the CFPB is protecting financial predators, not victimized consumers. 

Making all that worse, however, are the recent explosive revelations that the CFPB process that lead to that proposal was allegedly corrupted by concealed industry influence and CFPB lies, as detailed by two recent exposes. 

The stories allege that the payday loan industry secretly influenced the CFPB both in undisclosed meetings that the CFPB lied about and by concealing industry funding of and influence over supposedly independent academic research, which was submitted to the CFPB in connection with their proposal to gut the rule.

First, The Washington Post’s Renae Merle wrote a devastating examination that revealed the head of the Short-Term Loan Bar Association, Hilary Miller, hand-picked a university professor in Georgia to write a paper rebutting a key criticism of the industry: that borrowers are harmed by taking out repeated loans. 

According to Merle, the payday lending industry provided funding for the paper and the specific data sets the professor analyzed. 

Indeed, Miller, according to the story, even determined how borrowers’ credit scores were analyzed and weighed in directly on what conclusions the paper should draw to best reflect the industry’s desired outcome. 

This supposedly independent academic paper was then used by the payday loan industry to get the CFPB to issue a proposal to weaken the payday lending rule as described above.

Second, the New York Post’s Kevin Dugan wrote a piece that alleged that the same Hilary Miller on behalf of the payday loan industry had influenced another academic, this time one from Columbia University. 

Dugan reported: “Since at least 2017, US regulators [at the CFPB] have relied on a single, ‘objective’ academic study to shape restrictions on short-term, high-interest loans, which critics claim are prone to victimize cash-strapped borrowers.

"But the Ivy League professor behind that study … has enjoyed cozy ties to a payday-lending executive and advised other academics on how to sway policymakers." Dugan added that this Columbia academic had also “done previously undisclosed work at the behest of Hilary Miller.” 

While the academic claimed his work wasn’t influenced, it was nonetheless reported that “Miller had hired and paid for a third party to collect the data that [the academic’s] study was based on.” 

This academic also “suggested how [a different] industry-funded paper … should frame its conclusions” so that it would be “particularly useful for the policy audience that you are trying to reach,” i.e., the CFPB. 

Dugan separately also reported that the CFPB had lied about its meetings with Miller and other industry officials before they had proposed gutting the rule. Dugan got Miller to admit that he did meet with CFPB officials after the CFPB had denied it. 

When Dugan confronted the CFPB with the direct contradiction from Miller, the CFPB asked to go off the record.  When Dugan refused, the CFPB ceased responding to all efforts to get clarification or comment. 

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According to these reports, the CFPB met with and relied on the payday lending industry before it gutted the rule and then lied about it. Moreover, according to the reports, the CFPB has relied on at least two industry-influenced studies masquerading as independent academic studies. 

Given how difficult it is to discover such pernicious action, it’s reasonable to wonder what else the CFPB is lying about. 

Sadly, this is nothing new. The financial industry purchasing academics while hiding and disguising its influence behind apparently independent academic work was brilliantly revealed in Charles Ferguson’s Oscar-winning documentary, "Inside Job." 

The movie shows how the financial industry funded and used academics and their purportedly independent research to influence the deregulation of the financial system in the years before the 2008 financial crisis. It looks like history is repeating itself.  

Dennis Kelleher is the president and CEO of Better Markets, an organization that advocates for enhanced financial regulation and oversight.