In 2013, ProPublica has published an investigation into subprime lender World Finance. The world charged annual interest rates that could exceed 200%, often trapping customers in cycles of debt by causing them to renew loans over and over again. In states where the laws prohibited such high rates, the installment lender burdened many loans with nearly useless insurance products that inflated the cost. The company had over 800,000 clients, part of an installment loan industry that claimed to lend to millions of people.
The next year, Disclosed world that it was under investigation by the Consumer Financial Protection Bureau. The CFPB, the brainchild of Senator Elizabeth Warren, D-Mass., Was created by the 2010 Dodd-Frank Financial Reform Bill, and under the leadership of Richard Cordray, the agency took action against credit card lenders, mortgage agents and payday lenders. and others for unfair practices against consumers.
But after Cordray left last November, President Donald Trump appointed acting director of the office of management and budget, Mick Mulvaney. To say that Mulvaney criticized the CFPB is an understatement. In a 2014 interview Since he was still a Republican congressman, Mulvaney said of the CFPB, “some of us would like to get rid of him” and called it a “joke … in a sick and sad way.”
Over the past month, Mulvaney’s influence has become increasingly apparent. CFPB announcement it will “reconsider” its historic payday loan rule, which was issued last year and aimed to prevent borrowers from to be stuck just paying the interest over and over again on these loans because they couldn’t afford to pay them back. The next day, the office announced that it would invite comments on all aspects of CFPB’s activities “to suggest ways to improve outcomes for consumers and covered entities.” He also began to abandon the execution measures.
Last week, he dropped a trial against a group of payday lenders who were charging interest rates as high as 950%. The companies were associated with a Native American tribe, a common dodge the industry has used because it allows lenders to evade state interest rate caps.
And around the same time, it turns out that the CFPB also sent a letter informing World Finance that it was dropping its investigation into the installment lender. The company disclosed the letter in a press release yesterday. While the CFPB did not actually sue the company, it informed World in 2015 that an enforcement action was likely, according to a company disclosure.
Warren, in an email responding to questions about the CFPB decision, said the action showed Mulvaney was honoring his earlier vows.
“The CFPB should protect consumers, not giant corporations that use sky-high interest rates to trap hundreds of thousands of American workers in debt,” she wrote. “Dropping this case is further proof that Mick Mulvaney is simply using his time at CFPB to reimburse donors who funded his political career. “
Like the International Business Times reported today, World paid Mulvaney a total of $ 4,500 when he was a congressman from South Carolina, where World is headquartered.
The CFPB declined to comment. But in an email to CFPB staff today, Mulvaney explained what the office’s new approach should be. He had “no intention of shutting down the Bureau,” he wrote, but said his leadership would contrast sharply with Cordray’s approach to aggressive enforcement. The CFPB has worked for all taxpayers, he wrote, and that includes “those who take loans and those who make them” and “putting the full weight of the federal government on the necks of the people we serve should be. something we reluctantly do. In the future, he wrote, there would be “more formal regulation that financial institutions can rely on, and less regulation by enforcement.”
No area of Americans’ financial lives will be more affected by the recent CFPB turnaround than high-cost loans. Before the existence of the CFPB, there was virtually no federal regulation of these types of loans, which are irregularly regulated at the state level. Although public opinion is generally opposed to allowing three-digit interest rates, industry is adept at evading state rules and gaining influence with state legislators.
The CFPB rule would have significantly reduced high-cost payday and other short-term loans, but notably left longer-term loans such as those offered by World Finance intact. This made the possibility of enforcement action against World particularly remarkable. But the industry can apparently now rest easy. Any short-term threat to its ways of doing business is likely to emerge from states, where past battles over interest rate ceilings have been controversial and at times ugly.