Payday lenders appear to have a powerful friend in Washington.
Former Republican Rep. Mick Mulvaney is the interim head of the Consumer Financial Protection Bureau. He was appointed by President Trump amid an ongoing a power struggle for control of the bureau.
Watchdog groups are up in arms because, under Mulvaney, the CFPB has put on hold a rule that would restrict payday lenders and their high-interest-rate loans. The agency has also dropped a lawsuit against online lenders charging 900 percent interest rates. Critics say these moves are payback for campaign contributions to Mulvaney when he was a congressman representing South Carolina.
Payday lenders say that if you need some money fast, they provide a valuable service. And that is how some customers feel at the Advance America storefront in a little strip mall in Pawtucket, R.I.
One of those customers is auto mechanic Rafael Mercedes, who says he first came to the branch when he needed some parts to fix his own car. "My car broke down, and I needed money right then and there," he says.
Mercedes says he borrowed $450 and had to pay $45 in interest for the two-week loan. To get the loan, he left a check for the lender to cash the day he got paid by his employer — hence the term payday loans.
Borrowing the same amount of money on a credit card for two weeks wouldn't cost anything if he paid it back. But Mercedes says he has bad credit and no longer uses credit cards because he had bigger debt problems when he did.
"I'd prefer not to get into that big mess again," he says. "The people here are friendly, and I don't know, it just works for me."
And if it means someone like Mercedes can get a needed car repair to get to work when money is tight, what's the problem?
Christopher Peterson, a law professor at the University of Utah, says the problem is that "one payday loan often leads to another payday loan and so on into a debt trap."
"The average borrower is taking out eight of these loans per year," he says. "Some are taking out nine, 10, 15 or more loans per year. These costs can really add up."
Some people at the Advance America branch were clearly regular customers. Peterson says that by getting payday loans paycheck after paycheck, you're paying an annual interest rate of 200 percent to 300 percent — sometimes even higher depending on state regulations. And, he says, lenders taking money directly from people's checking accounts can trigger overdraft fees and other costs and problems.
Peterson worked for the Defense Department helping to draft regulations under the Military Lending Act, which banned these high-interest payday loans for service members.
"These loans have been found by Congress to be so dangerous that they have been prohibited for the military, and it was George W. Bush that signed that into law," he says of the Republican former president.
Peterson was also an adviser to the Consumer Financial Protection Bureau when it crafted its payday loan rule for the rest of the country.
The rule doesn't go as far as the military version. But it does require lenders to make sure people can afford to pay the loans back. And it was just about to start being phased into effect this month.
Mike Calhoun, president of the Center for Responsible Lending, is among consumer watchdogs who are upset that Trump recently chose Mulvaney, a former Republican congressman and current White House budget director, to run the consumer bureau.
Mulvaney once introduced legislation to abolish the bureau and called the CFPB a "sick, sad" joke. He also accepted money from payday lenders.
And now that he is running the agency, the CFPB put this rule on hold, saying it will take steps to reconsider the measure. The CFPB has also dropped a lawsuit against online lenders charging 900 percent interest rates. And it just dropped an investigation into a lender that contributed directly to Mulvaney's campaign.
"It is outrageous," Calhoun says. "Mulvaney took over $60,000 in campaign cash from the payday lenders when he was in Congress. He is deep in the pocket of the payday lenders and he's doing everything he can to help them."
Mulvaney declined requests for an interview. But he has said in the past he doesn't think campaign contributions present a conflict of interest for him.
Payday lenders, as might be expected, are happy to see the rule put on hold. Jamie Fulmer, with Advance America, says the rule would be too burdensome to implement for such small-dollar loans. (Many states cap the total amount for a payday loan at $500.) And he says it would cut off loans for his customers who need them.
"This is the classic example of somebody from Washington coming in and saying, 'Hey, we're here to help and we're here to tell you what's best for you and your family and we're gonna decide for you,' " Fulmer says.
Calhoun says that's not true because under the rule, lenders could make up to six loans a year to the same person in basically the same way they do now. The loans would just have to be 30 days apart.
If a customer starts taking out payday loan after payday loan beyond that, the rule would kick in. Though Calhoun says he is worried that with Mulvaney running the consumer bureau, the rule might never kick in at all.
Calhoun says if Mulvaney moves to scrap the payday loan rule, his nonprofit and others will file lawsuits to try to preserve it.
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