Payday lenders seem to have a powerful friend in Washington.
Former Republican Representative Mick Mulvaney is the acting head of the Consumer Financial Protection Bureau. He was appointed by President Trump amid an ongoing power struggle for control of the office.
Watch groups are rising up because, under Mulvaney, the CFPB suspended a rule that would restrict payday lenders and their high-interest loans. The agency also dropped a lawsuit against online lenders charging 900% interest rates. Critics say the measures are a reward for campaign contributions to Mulvaney when he was a congressman representing South Carolina.
Payday lenders say that if you need the cash fast, they are providing a valuable service. And that’s what some shoppers feel at the Advance America storefront in a small mall in Pawtucket, RI.
One of those customers is auto mechanic Rafael Mercedes, who says he first came to the branch when he needed parts to fix his own car. “My car broke down and I needed the money right away,” he says.
Mercedes says he borrowed $ 450 and had to pay $ 45 in interest on the two-week loan. To get the loan, he left a check with the lender to cash on the day he was paid by his employer – hence the term payday loan.
Borrowing the same amount of money on a credit card for two weeks would cost nothing if he paid it off. But Mercedes says he has bad credit and no longer uses credit cards because he had bigger debt problems at the time.
“I would rather not fall back into this big mess,” he said. “The people here are nice, and I don’t know, it just works for me.”
And if that means someone like Mercedes can get a car repair needed to get to work when money is tight, what’s the problem?
Christopher Peterson, a law professor at the University of Utah, explains that the problem is that “one payday loan often results in another payday loan and so on in a debt trap.”
“The average borrower takes out eight of these loans per year,” he says. “Some people take out nine, 10, 15 or more loans a year. These costs can really add up.”
Some people at the Advance America branch were clearly repeat customers. Peterson says that by getting payday loans check after check, you are paying an annual interest rate of 200-300%, sometimes even higher depending on state regulations. And, he says, lenders who take money directly from people’s checking accounts can trigger overdraft fees and other costs and problems.
Peterson worked for the Department of Defense helping to draft regulations under the Military Loans Act, which prohibited such high interest payday loans for service members.
“These loans were deemed by Congress to be so dangerous that they were banned for the military, and it was George W. Bush who enacted them,” he said of the former Republican president .
Peterson was also an advisor to the Consumer Financial Protection Bureau when it developed its rule on payday loans for the rest of the country.
The rule does not go as far as the military version. But it does require lenders to make sure people can afford to repay the loans. And it was about to start taking effect this month.
Mike Calhoun, chairman of the Center for Responsible Lending, is among the watchdogs of consumers who are upset that Trump recently picked Mulvaney, a former Republican congressman and current White House budget manager, to lead the office of the consumption.
Mulvaney once introduced legislation to abolish the office and called the CFPB a “sick and sad” joke. He also accepted money from payday lenders.
And now that it runs the agency, the CFPB has suspended that rule, saying it will take action to reconsider the measure. The CFPB also dropped a lawsuit against online lenders charging 900% interest rates. And he just dropped an investigation into a lender who directly contributed to Mulvaney’s campaign.
“It’s outrageous,” Calhoun says. “Mulvaney took over $ 60,000 in campaign money from payday lenders while in Congress.He’s deep in the pockets of payday lenders and he does everything he can to help them. ”
Mulvaney declined interview requests. But he has said in the past that he doesn’t think campaign contributions present a conflict of interest to him.
As you might expect, payday lenders are happy to see the rule suspended. Jamie Fulmer of Advance America says the rule would be too heavy to enforce for such small loans. (Many states cap the total amount of a payday loan at $ 500.) And he says that would cut loans for his clients who need them.
“This is the classic example of someone from Washington walking in and saying, ‘Hey, we’re here to help you and we’re here to tell you what’s best for you and your family and we’re going to decide what to do with it. you ‘”said Fulmer.
Calhoun says that’s not true because under the rule, lenders could make up to six loans per year to the same person in the same way they currently do. The loans would only have to be spaced 30 days apart.
If a client begins to take out a payday loan after a payday loan beyond, the rule would go into effect. Although Calhoun says he’s worried that Mulvaney is running the consumer office, the rule might never go into effect at all.
Calhoun says that if Mulvaney decides to abolish the payday loan rule, his nonprofit and others will sue to try to preserve it.
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