Editorial: Keep protection of agency’s payday loan rule

By The Herald Editorial Board

The Dr. Jekyll and Mr. Hyde nature of some federal agencies that has emerged since the start of the Trump administration continues with the Consumer Financial Protection Bureau seeking to reverse one of its signature efforts to guard consumers from predatory lenders.

While it awaits confirmation of nominee Kathy Kraninger to lead it, the bureau has been left in the hands of Mick Mulvaney, director of the Office of Management and Budget, who as a congressman sought to end then agency created in 2010 by legislation drafted in response to the nation’s financial meltdown.

Since taking over last year, Mulvaney has eased restrictions imposed by the bureau; dropped enforcement efforts, such as those passed by Congress in the Military Lending Act of 2006; dismissed the agency’s consumer advisory council; and even sought to change its name to the Bureau of Consumer Financial Protection, apparently in an attempt to weaken its support among the public by emphasizing its “bureaucracy.”

With Mulvaney in control, the CFPB has also sought to reconsider and terminate a rule adopted during the Obama administration that put regulations in place to protect consumers from predatory payday, auto title and other high-rate installment loans. The payday lending rule requires those lenders to verify the borrower’s income and their ability to repay the money that they borrow. It went into effect in January, but compliance provisions won’t be mandatory until Aug. 19, 2019.

A federal judge this week denied the bureau’s request to delay the 2019 compliance date, but that hasn’t ended Mulvaney’s attempt to rewrite the rule into oblivion.

A letter earlier this year from 43 U.S. senators, including Washington state Democrats Patty Murray and Maria Cantwell, objected to the efforts to rescind the payday loan rule, noting that while such loans can help families with unexpected expenses, the predatory loans, with interest rates exceeding 300 percent, can lead consumers to choose between defaulting on the loan or entering into a cycle of repeated borrowing and ever-accumulating interest fees.

As we reported in 2016 when the rule was under consideration, some 15 million Americans each year, many of them low-income, financially strapped and with few other options to gather cash during an emergency, turn to payday loans, car-title loans and other high-interest borrowing, generating about $7 billion in fees for lenders from short-term interest rates that average about 391 percent in the 36 states where they are allowed.

The CFPB, during its lucid Dr. Jekyll days when it first proposed the Payday Rule, noted that nearly 80 percent of payday loans were renewed within 14 days and that at least 27 percent of borrowers defaulted on their first loan. It also found that nearly 1 in 5 title-loan borrowers had had their vehicles seized by a lender for defaulting on loans.

Fortunately for Washington state residents, the Legislature has adopted and strengthened rules that offer better protection: Payday loans are limited to a maximum of $700 at a time. Not more than eight loans can be taken out in a 12-month period. And fees are limited to 15 percent on amounts of $500 or less with an additional 10 percent for amounts over $500.

There’s little hope that Kraninger, assuming she is confirmed by the Senate, will make a significant change from Mulvaney’s course for the agency. During testimony last month before a Senate committee, she told senators she intended to continue the bureau’s pro-business shift, The Washington Post reported.

The public that the bureau was created to protect and advise overwhelming supports its work. The Pew Charitable Trusts, as part of its reporting on the payday loan industry, in 2015 found that 75 percent of respondents in its survey believed that payday loans should be more tightly regulated. A poll in 2017 commissioned by the Center for Responsible Lending and Americans for Financial Reform found 74 percent support for the CFPB and its mission, including 66 percent of those who identified as Republicans, 77 percent of independents and 85 percent of Democrats.

Mulvaney can move the words around in the CFPB’s name but he won’t change public support for the agency’s work.