Credit: George Danby

Under its new director, the agency charged with protecting Americans from financial deception is instead planning to serve them up to some of Wall Street’s worst actors.

The Payday Lending Rule is designed to shield consumers from the predatory machinations of payday lenders, who use deceptive practices to trap working people into expanding cycles of debt. But now, the Consumer Financial Protection Bureau has signaled plans to undermine its own mandate to protect Americans from this notoriously predatory industry.

The bureau is seeking to use regulatory rule-making to keep Maine communities, and the American economy, exposed to the sort of unscrupulous lender behavior that led to the 2008 economic crash.

Payday lenders market their products as one-time “quick fix” loans for those in a financial pinch. But many people who approach payday lenders for short-term, small-dollar loans quickly find themselves buried under mounting interest and fees. In Maine, rates can reach as high as 260 percent.

The payday lending industry targets those who cannot pay their loans back without reborrowing and incurring more fees. This is a central feature of the business model; payday lenders make nearly three-quarters of their profits from those who take out more than 10 loans in a year.

In Maine, consumers often fall prey to out-of-state, online payday loan companies that operate illegally in our state. Internet-based lenders routinely ignore Maine’s interest rate cap and licensing requirements. State regulators often don’t even know these lenders are doing business in Maine until they receive a consumer complaint. Then, the lender often eludes investigation and enforcement by hiding behind affiliated financial service providers. Online payday lenders across the country are thumbing their noses at state regulators, disguising their operations, ignoring regulations and exploiting loopholes.

The consequences are severe for people trapped in this vicious cycle of debt. Often, their basic financial stability and security are undermined, as small-dollar loans spiral into sums whose interest alone exceed the initial loan within months.

This strategy of preying on borrowers with little ability to repay is exactly what the Payday Lending Rule is meant to combat.

After the Great Recession, the bureau undertook extensive research and stakeholder engagement to develop the rule, which was adopted in 2017. Among its many provisions, the Payday Lending Rule created the common-sense requirement that issuers of ballooning, short-term loans must determine whether consumers can reasonably afford to pay the loan back.

Lenders that would prefer not to be burdened by responsibility and good judgment have pulled out all the stops to undermine the rule and delay its implementation.

Online lending companies have worked relentlessly to disrupt adoption of meaningful consumer protections. They have contributed to congressional election campaigns and lobbied Congress to pass legislation to gut the bureau’s authority generally and to repeal the payday lending consumer protections specifically. They have also worked to influence the Trump administration, including a successful push to have the bureau drop lawsuits against them.

Now, the bureau’s newly confirmed director, Kathy Kraninger, plans to use the rule-making process eliminate consumer protections in payday lending regulations altogether, undermining her agency’s own regulatory power.

Kraninger is following in the footsteps of her predecessor, Mick Mulvaney, a former congressman who was the bureau’s biggest critic before he was named its director. The payday lending industry contributed tens of thousands of dollars to Mulvaney’s various electoral campaigns over the years. As director of the bureau, Mulvaney — who has stated publicly that he doesn’t believe it should even exist — oversaw the watering down of penalties for predatory payday lenders, including reducing penalties for one lender by 93 percent, from $3 million to only $200,000. He also directed the agency to join industry groups in a lawsuit to block the rule in federal court.

Americans of all political stripes have made it clear that they expect the bureau to uphold its mission to put American consumers first. In a 2018 poll, nearly 80 percent of voters expressed support for holding payday lenders accountable, including 63 who said they strongly support the payday rule. More than 80 percent — including 77 percent of Republicans — said they were concerned by the agency’s efforts to weaken its own enforcement actions against predatory lenders.

Gutting the Payday Lending Rule isn’t just contrary to the bureau’s purpose of protecting consumers. It’s regulatory malfeasance that puts the interests of predatory financial companies ahead of the American people.

Jody Harris is associate director of the Maine Center for Economic Policy.