By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.
Three Democrats and three Republicans have co-sponsored a resolution, under the Congressional Review Act (CRA), to scuttle the Consumer Financial Protection Bureau’s payday lending rule.
CRA’s procedures to overturn regulations had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (as I’ve previously discussed, see here, here, here and here). Not only does CRA provide expedited procedures to overturn regulations, but once it’s used to kill a regulation, the agency that promulgated the rule is prevented from revisiting the issue unless and until Congress provides new statutory authority to do so.
Payday Lending
As I wrote in an extended October post, CFPB Issues Payday Lending Rule: Will it Hold, as the Empire Will Strike Back, payday lending is an especially sleazy part of the finance sewer, in which private equity swamp creatures, among others, operate. The industry is huge, according to this New York Times report I quoted in my October post, and it preys on the poorest, most financially-stressed Americans:
The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald’s restaurants. The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.
The CFPB’s payday lending rule attempted to shut down this area of lucrative lending– where effective interest rates can spike to hundreds of points per annum, including fees (I refer interested readers to my October post, cited above, which discusses at greater length how sleazy this industry is, and also links to the rule; see also this CFPB fact sheet and press release.)
Tactically, as with the ban on mandatory arbitration clauses in consumer financial contracts– an issue I discussed further in RIP, Mandatory Arbitration Ban, (and in previous posts referenced therein), the CFPB under director Richard Cordray made a major tactical mistake in not completing rule-making sufficiently before the change of power to a new administration- 60 “session days” of Congress, thus making these two rules subject to the CRA.
The House Financial Services Committee press release lauding introduction of CRA resolution to overturn the payday lending rule is a classic of its type, so permit me to quote from it at length:
These short-term, small-dollar loans are already regulated by all 50 states, the District of Columbia and Native American tribes. The CFPB’s rule would mark the first time the federal government has gotten involved in the regulation of these loans.
….
House Financial Services Committee Chairman Jeb Hensarling (R-TX), a supporter of the bipartisan effort, said the CFPB’s rule is an example of how “unelected, unaccountable government bureaucracy hurts working people.”
“Once again we see powerful Washington elites using the guise of ‘consumer protection’ to actually harm consumers and make life harder for lower and moderate income Americans who may need a short-term loan to keep their utilities from being cut off or to keep their car on the road so they can get to work,” he said. “Americans should be able to choose the checking account they want, the mortgage they want and the short-term loan they want and no unelected Washington bureaucrat should be able to take that away from them.”
[Rep Dennis Ross, a Florida Republican House co-sponsor]. said, “More than 1.2 million Floridians per year rely on Florida’s carefully regulated small-dollar lending industry to make ends meet. The CFPB’s small dollar lending rule isn’t reasonable regulation — it’s a de facto ban on what these Floridians need. I and my colleagues in Congress cannot stand by while an unaccountable federal agency deprives our constituents of a lifeline in times of need, all while usurping state authority. Today, we are taking bipartisan action to stop this harmful bureaucratic overreach dead in its tracks.”
As CNBC reports in New House bill would kill consumer watchdog payday loan rule, industry representatives continue to denounce the rule, with a straight face:
“The rule would leave millions of Americans in a real bind at exactly the time need a fast loan to cover an urgent expense,” said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill’s introduction.
Consumer advocates think otherwise (also from CNBC):
“Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt,” Yana Miles, senior legislative counsel at the Center for Responsible Lending, said in a statement.
Prospects Under CRA
When I wrote about this topic in October, much commentary assumed that prospects for CRA overturn were weak. I emphasized instead the tactical error of failing to insulate the rule from CRA, which could have been done if the CFPB had pushed the rule through well before Trump took office:
If the payday rule had been promulgated in a timely manner during the previous administration it would not have been as vulnerable to a CRA challenge as it is now. Even if Republicans had then passed a CRA resolution of disapproval, a presidential veto would have stymied that. Trump is an enthusiastic proponent of deregulation, who has happily embraced the CRA– a procedure only used once before he became president to roll back a rule.
Now, the Equifax hack may have changed the political dynamics here and made it more difficult for Congressional Republicans– and finance-friendly Democratic fellow travellers– to use CRA procedures to overturn the payday lending rule.
The New York Times certainly seems to think prospects for a CRA challenge remote:
The odds of reversal are “very low,” said Isaac Boltansky, the director of policy research at Compass Point Research & Trading.
“There is already C.R.A. fatigue on the Hill,” Mr. Boltansky said, using an acronymn for the act, “and moderate Republicans are hesitant to be painted as anti-consumer.
I’m not so sure I would take either side of that bet. [Jerri-Lynn here: my subsequent emphasis.]
A more telling element than CRA-fatigue in my assessment of the rule’s survival prospects was my judgment that Democrats wouldn’t muster to defend the payday lending industry– although that assumption has not fully held, as this recent American Banker account makes clear:
After the payday rule was finalized in October, it was widely expected that Republicans would attempt to overturn it. It’s notable, though, that the effort has attracted bipartisan support in the House.
….
Passage in the Senate, however, may be a much heavier lift. The chamber’s vote to overturn the arbitration rule in late October came down to the wire, forcing Republicans to call in Vice President Mike Pence to cast the tie-breaking vote.
Bottom Line
I continue to think that this rule will survive– as the payday lending industry cannot count on a full court press lobbying effort by financial services interests. Yet as I wrote in October, I still hesitate to take either side of the bet on this issue.
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I think this whole article is totally disingenuous. There is a serious need for many Americans to have access to small amount, short term loans. While, these lenders may appear predatory, they do serve a large sector of society.
Maybe you need to read: The Unbanking of America: How the New Middle Class Survives by Lisa Servon. It might be worth the read.
Where’s the Post Office Bank when you need it. This overturning of the rule is just an effort to stop the Post Office Bank from gaining traction as the alternative non-predatory source of small loans to the people. Most pay day lender companies are owned by large financial players.
I agree that’s a far better approach and indeed, I discussed the Post Office bank in my October post– which is linked to in today’s post. Permit me to quote from my earlier post:
With phrasing like “unbanked” or “underbanked”, I worry that you’ve bought into the banking-industry framing of this issue, which I’m sure is not your intent.
Ordinary people should not need any bank (not even a government or post office bank) for everyday life, with the possible exception of mortgages. De-financialization of the medium of exchange, and basic payments, is something the public should be fighting for.
I would consider myself an ordinary person and I pay in cash when purchasing day to day items the vast majority of the time and yet I’d still prefer to deposit my money in a bank rather than hiding it in my mattress for any number of good reasons.
Banks aren’t the problem – their predatory executives are.
But there are, or at least ought to be, safe and secure ways to store money other than by lending it to banks or stuffing it into mattresses. Or carrying wads of cash.
For instance, a debit card (or possibly cell phone) with a secure identity / password can already act as a cashless wallet. The digital cash could be stored directly on the device, and accounted for through something similar to TreasuryDirect, without any intermediaries. But this would require the Federal Government to get serious about having a modern Digital Dollar of some kind (not bitcoin, shudder)…
Even better would be State Banks. Every state should have one. I believe the State Bank of North Dakota made money in 2008. While the TBTF Banks came hat in hand to our Reps. Of course OUR Reps handed them a blank check and told them to “Make it go Away”. However Post Office Banks would be GREAT!!
Not sure what a ‘Post Office Bank’ would do, would it make loans? I see a real need for readily available access to electronic fund transfers and debit cards for people who are below the no fee threshold and at the mercy of regular banking, but I don’t know how ‘Post Office Bank” loans would be handled, or if they even should.
This is the boilerplate argument that always gets brought up by payday loan defenders, and there is a good bit of truth to it. However, what you are not mentioning is that there are already far superior options available to pretty much any person who needs a small, short term loan. That solution is your friendly neighborhood Credit Union, most of which offer very low interest lines of overdraft coverage. I don’t mind saying that it has saved my heiny on more than one occasion. Pay check a little late in arriving? No problem, transfer $200 from your overdraft account into your checking account on-line and you’re good to go. Pay it back at your convenience, also on-line, at 7% APR.
Payday lenders are legal loansharks. The problems with their predatory lending model and the damage it does to low-income people are well documented. Simply pointing out that there is a reason that people end up at payday lenders is not a valid justification for the business practices of those lenders, especially when there are much better alternatives readily available.
Very true! There are several web sites that point out how the fees associated with payday loans raise the effective annual percentage rate into the stratosphere, ranging from 300% to over 600%. Here’s one:
http://paydayloansonlineresource.org/average-interest-rates-for-payday-loans/
One frustration that I have with legislation in general, and finance legislation in particular, is that it does not tell the truth, the whole truth and nothing but the truth.
In my Panglossian world, I envision a financial services bill that lays out the following:
Define the problem
Unserviced people: X percent( for discussion, say 10% to make the math easy) of people are un-serviced (or under-, or rapaciously-serviced) by conventional financial companies, whether banks, credit unions or other, whatever other is conventionally.
Unserviced and don’t want: Y percent of that X percent (say, 50% of 10%, so 5%) doesn’t want services.
Unserviced and want: 1-Y percent of that X percent (say, 50% of 10%, so 5%) wants services but can not get them. That could be due to various factors, ranging from bad credit (how defined?, say FICO < 600?) to geographic remoteness (no branches within miles, no internet, precious little slow mail service, whatever).
Within that deemed unserved 5% of the population, what are the costs to serve and what are the alternatives?
What would an honest service provider need to provide service, accounting for credit risks and the like, and still make a profit sufficient to induce investment?
If I knew how to make and add a nice graphic, I'd include a waterfall chart here to show the costs and components of the interest and fees paid in regular and default mode. Sorry, please bear with me as I make up numbers.
Regular costs
Interest at 30%
Less: cost of funds at, say, 10%
Less: personnel, overhead, everything else at, say, 5%
Pre-tax profit: 15%
Default mode costs:
Interest at 275%
Plus: Fees at 25%
Less: cost of funds 20%
Less: personnel, overhead, etc 5%
Less: added default cost not in personnel etc line, say 25%
Pre-tax profit: 250%
In that little example, who couldn't make money at those rates?
Extending the notion of APR and Truth-In-Lending to include payday lenders and anyone else without a brick-and-mortar branch who wants to do business in the US, how about mandating some type of honest waterfall chart as dreamt of above?
Then cross-reference and publicize the voting on finance legislation with the campaign contributions from payday people and their ilk, and layer in the borrower costs and credit scores and other metrics in those Congressional districts and zip+4 codes and census tracts and whatever other level of granularity will help provide any amount of disinfecting sunlight to help see the scattering cockroaches.
The problem I suspect is that your “friendly neighborhood credit union” is actually rarely anywhere near the neighborhoods where people who need these kind of loans live.
They don’t have cars and mass transit is non-existent or so slow they couldn’t get to the Credit Union during business hours, and back again, anyway. That’s the problem with expecting Private Enterprise to be a solution for people at the bottom. They don’t set up shop where those people live, or the ones that do are not exactly do-gooders.
I just checked and a lot of credit unions let you apply for a loan online, (earlier you can set up membership online). So the issue of transport and time is lessened assuming folks have some form of net access.
One might ask why there are millions of people reduced to having to get ripped off by payday and auto-title lenders, to somehow survive from week to week. Maybe because people can’t make a living wage? Can’t save any money, however prudent and abstemious they may be? Because inter-citizen cruelty and Calvinism are so very strong a force in this rump of an Empire?
Some of the comments here seem to build on the baseline assumption that’s part of the liberal-neoliberal mantra, “You get what’s coming to you (or the pittance we can’t quite squeeze out of you yet)”.
diptherio, I am guessing you may mean that there are models of better alternatives readily available, like paying a living wage, a social safety net for the worst off, a postal bank, national health care, stuff like that. I don’t see that there are any alternatives actually available to most real people “on the ground.”
There is an alternative to excessive payday loans, but only if you’re in the military, where it’s capped @ 36%.
Why not 36% for everybody?
You are, of course, correct in that the underlying problem is that so many people are forced to live on so little that they need payday loans in the first place. Thanks for pointing that out.
My point is simply that in the short-term, as a matter of practicality for those of us who don’t always make it until payday before running out of money, a CU overdraft account is a very good option.
Agree. The AB article from October deadpans a description of the ins and outs governing the hellishness of the company town we’re living in.
This is a far superior option and thank you for bringing it up. The only problem is most banks and credit unions will not tell you it exists because they make a lot more money if you just keep bouncing checks.
I only learned about it when I worked for WAMU. We were tasked by management with promoting various new products to customers as a condition of being paid a monthly bonus which was the only thing that made the job pay enough to live on. Funny, they never asked us to promote the overdraft line of credit (aka an ODLOC), ever. I do remember one of my managers tell me that circa 2000 or so, WAMUs operating costs for the entire company for the entire year were offset just by the fees they collected off of bounced checks etc.
The fees or interest you pay for using an ODLOC are a small fraction of what you’d pay for bouncing just one check. IIRC, if I overdrew by $200 or so and paid it back on my next payday, the interest was generally less than $1. My local credit union has since added a $5 fee for accessing the ODLOC on top of the interest, but it’s still much less than a bounced check fee or interest on a payday loan. I believe that depending on your credit history, you can get an ODLOC of up to $2500 or so which pretty much negates the need for any payday loans.
Thank you diptherio! Credit Unions are where it’s at, and they are much easier to join these days than they used to be.
My town (San Francisco), while hardly an ideal model these days by any stretch of the imagination, is also not the worst around on this issue. SF has long regulated payday loan scammers, has offered ways for disconnected folks to open savings accounts, starts accounts for kids at public schools, and has also long talked about starting a municipal bank. It may actually happen now that recreational marijuana will be legal as a way for growers and cannabis clubs to safely have business accounts. It might benefit many other folks as well—should be interesting.
A friend of mine was evicted from her apartment because of a payday loan. She failed to pay it off in full quick enough and it spiraled out of control tripling in a very short time. I really fail to see how usury is beneficial to society.
Yes, there’s a need for high-interest loans that bankrupt borrowers:
I read Servon’s book. It is not a brief on behalf of the payday loan industry. She worked at a couple of payday lenders and explains how they serve the communities they’re in, but a few things need to be noted:
The business she was most sympathetic with was a small, local one with only a couple of storefronts, in an east coast inner city. The owner and his help knew the customer base, often by name. Much of her sympathy came from her respect for the women who were dishing out the loans at the windows, not the owners and not the business model. This local joint operated like the most benign of old time pawnbroker/loansharking operation from the early part of the last century.
Most “Cash America” storefront shops (on shabby, midcentury shopping strips in inner ring scuburbs across the US) aren’t this decent. They aren’t “part of a community” in any sense. And the rates are usurious any way, for all of them.
Thank you to Ms. Scofield for continuing to cover this and related businesses. The upper, cleaner part of our finance industry derives more filthy lucre from these kinds of loan shops than they ever want you to know (sub-prime lending shops, title loans shops……. there are a lot of modalities for fleecing the poor and the near-poor nowadays).
The NC staff must be pleased that it seems like so many subtle apologists for the looters, predators, “intelligence community,” and so forth, appear to be turning up here early in the opening of new site posts. I’m guessing the Elite are not exactly quaking in fear that NC’s reporting will catalyze some change that might sweep the political economy in the direction of what the mopery would categorize as “fairness,” but still…
Raised the dollar definition of middle class and declared a ‘new middle class’ or could it be ‘new middle class’ is actually referring to the ‘new middle poor’. The former middle class is desperately trying to avoid a plunge into the pits of the ‘poor poor’. Payday Loan predators are greasing the handrails.
“Where will the money-changers change money if not in the Holy Temple? Aren’t we starving the priests of much-needed revenue? This Jesus guy is totally disingenuous.”
In good neo liberal fashion that Jesus dude got exactly what he deserved. The effrontry of that guy to chase those hard working money lenders out of the temple square. Got exactly what was coming to him.
H.J.Res.122 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to “Payday, Vehicle Title, and Certain High-Cost Installment Loans”.
December 1, 2017
Sponsor Rep. Ross, Dennis A. [R-FL-15] (Introduced 12/01/2017)
Rep. Hastings, Alcee L. [D-FL-20]
Rep. Graves, Tom [R-GA-14]
Rep. Cuellar, Henry [D-TX-28]
Rep. Stivers, Steve [R-OH-15]
Rep. Peterson, Collin C. [D-MN-7]
Ahhh…..look at this list. TWO Florida lawbreakers introducing this banker bill. And one from Minnesota. Y’all know that Jacksonville, FL and St. Paul, MN are the two places where the forgeries continue to be provided to the financial crooks? So, it goes to figure that the lawbreakers are attempting to protect the financial crooks committing forgery in their prospective states! How appro.
If any of these House critters are “representing” you, time for lots of calls to them.
And thanks, SD, for listing them. I always wonder why our vaunted free press so seldom lists the sponsors of legislation when it’s reported on…. Hhmm….
m….
Colin Peterson is the D elected in the most R leaning district. He is as blue dog as you get; the ex husband of the R FL-SOS that stole the election for shrub. It is not a wealthy district though so maybe he just bought into the propaganda that it is good for poor people.
I have mixed feelings about this specific issue.
The larger issue of a grossly skewed economic system is what needs to be fixed.
There will always be people that lack common sense and brains regarding money. There will always be people that will take advantage of that.
I don’t know how or why you would try and legislate that away.
We need to move in the direction of solving the biggest problems and not get wrapped up in the little problems.
The numbers above sound horrendous, but 7 billion in profit on 46 billion loaned is 14% return. Credit card companies are worse. 7 billion in profit off of 12 million people is $600 per person. Alot for poor folks I recognize, but not necessarily life shattering for all.
The “system” loves to wrangle around with issues like this (trivial in my mind) so the handful of big ones go unattended.
…some have apparently not felt it necessary to bail out family members for aggressive, egregious and immediate interest rates and escalations charged by these scammers…
but there certainly appears concerted effort by (likely) shills to perpetuate scams…(and to discredit Consumer Financial Protection Agency and Liz Warren…)
Warren-Sanders 2020
I think there’s an error in the original article, where it says:
My understanding is that CRA gives Congress the power to overturn executive branch regulations, not legislation (which Congress already can overturn anyway). Is that incorrect?
P.S. It’s sad that it might not even matter. Nowadays the public can’t tell the difference between regulations (written by unaccountable, unelected officials who take the revolving door back to working at the firms they regulated) and legislation (written by unaccountable, only notionally elected politicians who get paid off in various ways by lobbyists for the same firms)…
You’re correct– fixed it! Slip of the fingers there that I didn’t catch when I proofread the post. As the rest of the paragraph makes clear, CRA procedures are used to overturn regulations.
Thanks for reading my work so carefully and drawing the error to my attention.
Finally bipartisan!
Trump loves it…
Obomber woulda loved it…
She who cannot be named woulda loved it, too.
Time for them all to get over that little spat… she did it before… trump should appoint her to something useful… I bet she’d love secdef…
Where is the lovely Debbie Wasserman schultz in all of this? She has not surprisingly been a leading cheerleader for these pay day lender sharks. but hey, what the hey, the lobby money is good!
Who are the 3 Democrat co-sponsors?