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MPR News with Angela Davis: Can we solve the payday loan debt trap?

By Chris Farrell and Maja Beckstrom

High interest rates on short-term consumer loans can spiral into crushing debt. On Tuesday, guest host and senior economics contributor Chris Farrell talks to a lawyer and a nonprofit advocate about the latest efforts to curb payday loans. 
Photo by Steve Rhodes via Flickr 2009

The crisis often starts with a car repair or surprise medical bill. It can end with a consumer deep in debt having paid hundreds or even thousands of dollars in interest and fees to a payday loan company. 

Payday loans are short-term consumer loans with fees so high that borrowers end up paying what amount to triple-digit interest rates. The loans have come under more criticism recently as payday lenders stepped up online advertising to people squeezed by the pandemic recession.

In January, Illinois became the latest state to pass a 36 percent interest rate cap on payday loans. Consumer advocacy groups are supporting a similar bill in the Minnesota Legislaturemodeled on protections in the Military Lending Act, which was enacted in 2006 to cap interest rates for active duty members of the military and their families.  

Do payday loans offer a legitimate service to people in a crisis? What better alternatives exist? How should consumer lending be regulated?  

MPR News guest host and senior economics contributor Chris Farrell talked to a law professor and a nonprofit advocate about how to address payday loans. 

Guests: 

  • Sara Nelson-Pallmeyer is the executive director of Exodus Lending, a nonprofit organization in the Twin Cities that refinances payday loans as no-interest loans. 
  • Creola Johnson is a law professor at The Ohio State University Moritz College of Law in Columbus, Ohio. 

Use the audio player… listen to the program.

Listen to the MPR program here.

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Moorhead cracks down on payday lending

By Dan Gunderson

A payday loans store in Springfield, Ill., is open for business in this file photo from 2006. City officials in Moorhead say a new ordinance regulating pay day lenders is the first of its kind in Minnesota.
Seth Perlman | AP 2006

City officials in Moorhead, Minn., say a new ordinance regulating pay day lenders is the first of its kind in Minnesota and among the first in the nation.

Moorhead City Council member Heidi Durand has been immersed in the issue of payday loans for a couple of years after she learned local residents were spending hundreds of thousands of dollars a year on short term high interest loans.

“I heard horror stories I heard personal experiences from people, and it was really deplorable to me, it really made me sick,” she said.

Durand worked with other city leaders and city staff to develop what she calls a unique approach, using licensing requirements to restrict payday loans. She said many states, including North Dakota, restrict payday lending more than Minnesota, and some of the regulations implemented by other states helped shape the new Moorhead ordinance. 

“No more than two loans of $1,000 or less per person per calendar year. No more than 33 percent interest, a minimum payback of 60 days. That is to get people out of the payday loan trap,” said Durand. In addition to those key regulations lenders must follow to be licensed in the city, they must also provide an itemized list of all fees and charges to customers and provide data about loans to the city on an annual basis. 

“I’m shutting down on January 1st,” said Vello Laid, part owner of Greenbacks, a Moorhead payday loan operation he said has been in business for 20 years. 

Laid said the new ordinance makes it nearly impossible to run his business. 

He argues payday lenders are an “emergency service like an ambulance” and should be allowed to charge higher rates because they lend to people traditional lenders consider too risky for a loan. 

Durand championed the restrictions. She said the next step is developing low cost alternative lending options. 

“Working with our churches working with nonprofits, working with community action partners, to make sure that lending is done ethically and morally and that people aren’t being taken advantage of,” she said.

The Minneapolis Area Synod of the Evangelical Lutheran Church in America is actively pushing what it’s calling the “Moorhead model” to other Minnesota cities. 

“Minnesota’s cities are ready to take up the mantle if the state Legislature does not work to protect the state’s citizens from predatory lenders,“ said Meghan Olsen Biebighauser, an organizer for the Minneapolis Area Synod and the coalition Minnesotans for Fair Lending.

Durand said officials in Duluth and Mankato, Minn., have inquired about the regulation and while her city council term is ending, she plans to actively pitch the payday loan regulation idea to other cities in the new year.

Read the MPR story here.

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A red state is capping interest rates on payday loans: ‘This transcends political ideology’

By Jacob Passy

Interest rates on payday loans will be capped in Nevada, following passage of a ballot measure on Tuesday. On average nationally, payday lenders charge 400% interest on small-dollar loans.
OLI SCARFF/ GETTY IMAGES

Nebraska voters overwhelming chose to put limits on the interest rates that payday lenders can charge — making it the 17th state to limit interest rates on the risky loans. But consumer advocates cautioned that future protections related to payday loans may need to happen at the federal level because of recent changes in regulations.

With 98% of precincts reporting, 83% of voters in Nebraska approved Initiative 428, which will cap the annual interest charged for delayed deposit services, or payday lending, at 36%. On average, payday lenders charge 400% interest on the small-dollar loans nationally, according to the Center for Responsible Lending, a consumer advocacy group that supports expanded regulation of the industry.

By approving the ballot measure, Nebraska became the 17th state in the country (plus the District of Columbia) to implement a cap on payday loans. The overwhelming vote in a state where four of its five electoral votes will go to President Donald Trump — the state divides its electoral votes by congressional district, with Nebraska’s second district voting for former Vice President Joe Biden — shows that the issue could garner bipartisan support.

“This is not a lefty, out-there, high-regulation state,” said Noel Andrés Poyo, executive Director of the National Association for Latino Community Asset Builders, a Latino-owned business advocacy group.

“The people of Nebraska are not on average very big about limiting the financial services industry,” Poyo added. “But when you ask evangelical Christians about payday lending, they object to it.”

Industry officials argued that the ballot measure would impede consumers’ access to credit, and said that the rate cap makes it such that lenders will not be able to operate in the state. 

“It amounts to eliminating regulated small-dollar credit in the state while doing nothing to meet Nebraskans’ very real financial needs, including amid the COVID-19 pandemic and economic downturn,” said Ed D’Alessio, executive director of INFiN, a national trade association for the consumer financial services industry.

The ballot measure’s success in Nebraska could presage similar efforts in other states. Other states that have capped the interest payday lenders charge in recent years via ballot measures like Nebraska’s include Colorado and South Dakota.

“This transcends political ideology,” said Ashley Harrington, federal advocacy director at the Center for Responsible Lending. “There is just something wrong with triple digit interest rates and trapping people in cycles of debt.”

The experiences in those states add further support behind initiatives to cap interest on small-dollar loans. In South Dakota, the volume of unsecured and payday alternative loans offered by credit unions, which are subject to an 18% and 28% rate cap, has grown considerably since the ballot measure passed in 2016, research has shown. And polls indicate continued support of the interest rate cap on payday loans among a vast majority of South Dakotans.

Federal regulators have loosened limits on the payday lending industry

Despite the measure’s success in Nebraska, changes occurring at the federal level could weaken efforts to regulate the payday-lending industry and cap the interest rates it charges.

In July, the Consumer Financial Protection Bureau issued a new rule rescinding provisions of a 2017 rule that mandated that payday lenders must determine whether a person will be able to repay their loans. Critics of the payday industry have long argued that the high interest rates the loans carry cause people to fall into debt spirals, whereby they must borrow new loans to pay off existing payday loans. 

NALCAB, which is being represented by the Center for Responsible Lending and Public Citizen, filed a lawsuit in federal court last week against the CFPB looking to overturn the new rule.

Meanwhile, the Office of the Comptroller of the Currency, which regulates national banks, last month finalized the “true lender” rule. This new regulation allows non-bank lenders, such as payday lenders, to partner with banks to offer small-dollar loans. Because the loans would be made through the bank, they would not be subject to state-based interest rate caps. Critics have called the new regulation a “rent-a-bank” scheme and argue it could harm consumers.

“It’s not a loophole, it’s a gaping tunnel,” Poyo said, in criticizing the OCC’s new regulation.

If Democrat Joe Biden wins the presidential election, his administration would take over leadership of both the CFPB and the OCC and could rescind these new policies, Poyo said. 

However, Harrington argued that the federal government should go a step further and create a federal cap on interest rates. Even if control of Congress remains divided between Democrats and Republicans, Harrington said lawmakers should look to the success of the ballot measures in Nebraska and South Dakota as inspiration.

“Everyone should be able to get behind safe, affordable consumer loans that don’t have triple-digit interest rates,” Harrington said.

Read the MarketWatch article here.

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Nebraska becomes the latest state to cap payday loan interest rates

By Megan Leonhardt

Ahmed Morsi brings along his month-old son Omar, while filling his ballot at a polling place in Omaha, Neb., Tuesday, Nov. 3, 2020.
Nati Harnik | AP

Nebraska voters overwhelmingly supported a ballot initiative Tuesday that caps rates on payday loans at 36% throughout the state, even as federal legislation restricting these high-cost loans remains stalled. 

Roughly 83% of Nebraska voters approved Measure 428, according to the Nebraska Secretary of State, which provides election results. The ballot measure proposed putting a 36% annual limit on the amount of interest for payday loans. With its passage, Nebraska is now one of 17 states, in addition to Washington, D.C., to impose restrictions on payday loan interest rates and fees, according to the ACLU

“This is a huge victory for Nebraska consumers and the fight for achieving economic and racial justice,” Ronald Newman, national political director at the ACLU, said in a statement. “Predatory payday lending makes racial inequalities in the economy even worse — these lenders disproportionately target people of color, trapping them in a cycle of debt and making it impossible for them to build wealth.”

Previously, the average interest rate for a payday loan in Nebraska was 404%, according to the Nebraskans for Responsible Lending coalition, which helped get the initiative on the ballot. 

Lenders who offer these small loans, which you can generally take out by walking into a lender with just a valid ID, proof of income and a bank account, require borrowers to pay a “finance charge” (service fees and interest) to get the loan, the balance of which is due two weeks later, typically on your next payday. Lenders in Nebraska could charge up to $15 per $100 loaned, and individual borrowers can take loans for up to $500, according to the Consumer Federation of America.

Nebraska joins a handful of states that have voted to pass payday loan limitations in recent years. South Dakota voters approved a 36% cap in 2016 and Colorado followed in 2018Ohio put restrictions on rates, loan amounts and duration that went into effect last year. New Hampshire put a 36% rate cap into effect in 2009, and Montana’s state legislature passed a similar law in 2010.

Beyond rate caps, ArizonaArkansasConnecticutGeorgiaMarylandMassachusettsNew JerseyNew YorkNorth CarolinaNew MexicoPennsylvaniaVermont and West Virginia prohibit these types of loans and several include interest rate caps on other types of consumer loans.

Nebraska joins a handful of states that have voted to pass payday loan limitations in recent years. South Dakota voters approved a 36% cap in 2016 and Colorado followed in 2018Ohio put restrictions on rates, loan amounts and duration that went into effect last year. New Hampshire put a 36% rate cap into effect in 2009, and Montana’s state legislature passed a similar law in 2010.

Beyond rate caps, ArizonaArkansasConnecticutGeorgiaMarylandMassachusettsNew JerseyNew YorkNorth CarolinaNew MexicoPennsylvaniaVermont and West Virginia prohibit these types of loans and several include interest rate caps on other types of consumer loans.

Across the U.S., 37 states have specific statutes that allow for some type of payday lending, according to the National Conference of State Legislatures.

Federal lawmakers introduced similar legislation through the Veterans and Consumers Fair Credit Act in November 2019 that would cap interest rates at 36% for all consumers nationwide. The bipartisan legislation — which is the latest attempt to curb payday loans at the federal level — was built off the framework of the 2006 Military Lending Act, which capped loans at 36% for active-duty service members.

Despite both Democrat and Republican co-sponsors, the bill remains stalled, forcing state groups like Nebraska’s coalition to push ahead with local campaigns.

Advocates hope that the win in Nebraska will cause lawmakers and voters nationwide to take note. ”[This] vote proves that we can still find common ground on important issues, including economic and racial justice. Protecting our neighbors isn’t a red or blue value, it’s an American value,” says Danielle Conrad, executive director at the ACLU of Nebraska.

Read the CNBC article here.

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How payday lenders spent $1 million at a Trump resort — and cashed in

By Anjali Tsui(ProPublica) and Alice Wilder(WNYC)

The Trump National Doral outside Miami, Fla.
Joe Raedle | Getty Images

In mid-March, the payday lending industry held its annual convention at the Trump National Doral hotel outside Miami. Payday lenders offer loans on the order of a few hundred dollars, typically to low-income borrowers, who have to pay them back in a matter of weeks. The industry has long been reviled by critics for charging stratospheric interest rates — typically 400% on an annual basis — that leave customers trapped in cycles of debt.

The industry had felt under siege during the Obama administration, as the federal government moved to clamp down. A government study found that a majority of payday loans are made to people who pay more in interest and fees than they initially borrow. Google and Facebook refuse to take the industry’s ads.

On the edge of the Doral’s grounds, as the payday convention began, a group of ministers held a protest “pray-in,” denouncing the lenders for having a “feast” while their borrowers “suffer and starve.”

But inside the hotel, in a wood-paneled bar under golden chandeliers, the mood was celebratory. Payday lenders, many dressed in golf shirts and khakis, enjoyed an open bar and mingled over bites of steak and coconut shrimp.

They had plenty to be elated about. A month earlier, Kathleen Kraninger, who had just finished her second month as director of the federal Consumer Financial Protection Bureau, had delivered what the lenders consider an epochal victory: Kraninger announced a proposal to gut a crucial rule that had been passed under her Obama-era predecessor.

Payday lenders viewed that rule as a potential death sentence for many in their industry. It would require payday lenders and others to make sure borrowers could afford to pay back their loans while also covering basic living expenses. Banks and mortgage lenders view such a step as a basic prerequisite. But the notion struck terror in the payday lenders. Their business model relies on customers — 12 million Americans take out payday loans every year, according to Pew Charitable Trusts — getting stuck in a long-term cycle of debt, experts say. A CFPB study found that three out of four payday loans go to borrowers who take out 10 or more loans a year.

Now, the industry was taking credit for the CFPB’s retreat. As salespeople, executives and vendors picked up lanyards and programs at the registration desk by the Doral’s lobby, they saw a message on the first page of the program from Dennis Shaul, CEO of the industry’s trade group, the Community Financial Services Association of America, which was hosting the convention. “We should not forget that we have had some good fortune through recent regulatory and legal developments,” Shaul wrote. “These events did not occur by accident, but rather are due in large part to the unity and participation of CFSA members and a commitment to fight back against regulatory overreach by the CFPB.”

This year was the second in a row that the CFSA held its convention at the Doral. In the eight years before 2018 (the extent for which records could be found), the organization never held an event at a Trump property.

Asked whether the choice of venue had anything to do with the fact that its owner is president of the United States and the man who appointed Kraninger as his organization’s chief regulator, Shaul assured ProPublica and WNYC that the answer was no. “We returned because the venue is popular with our members and meets our needs,” he said in a written statement. The statement noted that the CFSA held its first annual convention at the Doral hotel more than 16 years ago. Trump didn’t own the property at the time.

The CFSA and its members have poured a total of about $1 million into the Trump Organization’s coffers through the two annual conferences, according to detailed estimates prepared by a corporate event planner in Miami and an executive at a competing hotel that books similar events. Those estimates are consistent with the CFSA’s most recent available tax filing, which reveals that it spent $644,656 on its annual conference the year before the first gathering at the Trump property. (The Doral and the CFSA declined to comment.)

“It’s a way of keeping themselves on the list, reminding the president and the people close to him that they are among those who are generous to him with the profits that they earn from a business that’s in severe danger of regulation unless the Trump administration acts,” said Lisa Donner, executive director of consumer group Americans for Financial Reform.

The money the CFSA spent at the Doral is only part of the ante to lobby during the Trump administration. The payday lenders also did a bevy of things that interest groups have always done: They contributed to the president’s inauguration and earned face time with the president after donating to a Trump ally.

But it’s the payment to the president’s business that is a stark reminder that the Trump administration is like none before it. If the industry had written a $1 million check directly to the president’s campaign, both the CFSA and campaign could have faced fines or even criminal charges — and Trump couldn’t have used the money to enrich himself. But paying $1 million directly to the president’s business? That’s perfectly legal.

The inauguration of Donald Trump was a watershed for the payday lending industry. It had been feeling beleaguered since the launch of the CFPB in 2011. For the first time, the industry had come under federal supervision. Payday lending companies were suddenly subject to exams conducted by the bureau’s supervision division, which could, and sometimes did, lead to enforcement cases.

Before the bureau was created, payday lenders had been overseen mostly by state authorities. That left a patchwork: 15 states in which payday loans were banned outright, a handful of states with strong enforcement — and large swaths of the country in which payday lending was mostly unregulated.

Then, almost as suddenly as an aggressive CFPB emerged, the Trump administration arrived with an agenda of undoing regulations. “There was a resurgence of hope in the industry, which seems to be justified, at this point,” said Jeremy Rosenblum, a partner at law firm Ballard Spahr, who represents payday lenders. Rosenblum spoke to ProPublica and WNYC in a conference room at the Doral — filled with notepads, pens and little bowls of candy marked with the Trump name and family crest — where he had just led a session on compliance with federal and state laws. “There was a profound sense of relief, or hope, for the first time.” (Ballard Spahr occasionally represents ProPublica in legal matters.)

In Mick Mulvaney, who Trump appointed as interim chief of the CFPB in 2017, the industry got exactly the kind of person it had hoped for. As a congressman, Mulvaney had famously derided the agency as a “sad, sick” joke.

If anything, that phrase undersold Mulvaney’s attempts to hamstring the agency as its chief. He froze new investigations, dropped enforcement actions en masse, requested a budget of $0 and seemed to mock the agency by attempting to officially re-order the words in the organization’s name.

But Mulvaney’s rhetoric sometimes exceeded his impact. His budget request was ignored, for example; the CFPB’s name change was only fleeting. And besides, Mulvaney was always a part-timer, fitting in a few days a week at the CFPB while also heading the Office of Management and Budget, and then moving to the White House as acting chief of staff.

It’s Mulvaney’s successor, Kraninger, whom the financial industry is now counting on — and the early signs suggest she’ll deliver. In addition to easing rules on payday lenders, she has continued Mulvaney’s policy of ending supervisory exams on outfits that specialize in lending to the members of the military, claiming that the CFPB can do so only if Congress passes a new law granting those powers (which isn’t likely to happen anytime soon). She has also proposed a new regulation that will allow debt collectors to text and email debtors an unlimited number of times as long as there’s an option to unsubscribe.

Enforcement activity at the bureau has plunged under Trump. The amount of monetary relief going to consumers has fallen from $43 million per week under Richard Cordray, the director appointed by Barack Obama, to $6.4 million per week under Mulvaney and is now $464,039, according to an updated analysis conducted by the Consumer Federation of America’s Christopher Peterson, a former special adviser to the bureau.

Kraninger’s disposition seems almost the inverse of Mulvaney’s. If he’s the self-styled “right wing nutjob” willing to blow up the institution and everything near it, Kraninger offers positive rhetoric — she says she wants to “empower” consumers — and comes across as an amiable technocrat. At 44, she’s a former political science major — with degrees from Marquette University and Georgetown Law School — and has spent her career in the federal bureaucracy, with a series of jobs in the Transportation and Homeland Security departments and finally in OMB, where she worked under Mulvaney. (In an interview with her college alumni association, she hailed her Jesuit education and cited Pope Francis as her “dream dinner guest.”) In her previous jobs, Kraninger had extensive budgeting experience, but none in consumer finance. The CFPB declined multiple requests to make Kraninger available for an interview and directed ProPublica and WNYC to her public comments and speeches.

Kraninger is new to public testimony, but she already seems to have developed the politician’s skill of refusing to answer difficult questions. At a hearing in March just weeks before the Doral conference, Democratic Rep. Katie Porter repeatedly asked Kraninger to calculate the annual percentage rate on a hypothetical $200 two-week payday loan that costs $10 per $100 borrowed plus a $20 fee. The exchange went viral on Twitter. In a bit of congressional theater, Porter even had an aide deliver a calculator to Kraninger’s side to help her. But Kraninger would not engage. She emphasized that she wanted to conduct a policy discussion rather than a “math exercise.” The answer, by the way: That’s a 521% APR.

A while later, the session recessed and Kraninger and a handful of her aides repaired to the women’s room. A ProPublica reporter was there, too. The group lingered, seeming to relish what they considered a triumph in the hearing room. “I stole that calculator, Kathy,” one of the aides said. “It’s ours! It’s ours now!” Kraninger and her team laughed.

Triple-digit interest rates are no laughing matter for those who take out payday loans. A sum as little as $100, combined with such rates, can lead a borrower into long-term financial dependency.

That’s what happened to Maria Dichter. Now 73, retired from the insurance industry and living in Palm Beach County, Florida, Dichter first took out a payday loan in 2011. Both she and her husband had gotten knee replacements, and he was about to get a pacemaker. She needed $100 to cover the co-pay on their medication. As is required, Dichter brought identification and her Social Security number and gave the lender a postdated check to pay what she owed. (All of this is standard for payday loans; borrowers either postdate a check or grant the lender access to their bank account.) What nobody asked her to do was show that she had the means to repay the loan. Dichter got the $100 the same day.

The relief was only temporary. Dichter soon needed to pay for more doctors’ appointments and prescriptions. She went back and got a new loan for $300 to cover the first one and provide some more cash. A few months later, she paid that off with a new $500 loan.

Dichter collects a Social Security check each month, but she has never been able to catch up. For almost eight years now, she has renewed her $500 loan every month. Each time she is charged $54 in fees and interest. That means Dichter has paid about $5,000 in interest and fees since 2011 on what is effectively one loan for $500.

Today, Dichter said, she is “trapped.” She and her husband subsist on eggs and Special K cereal. “Now I’m worried,” Dichter said, “because if that pacemaker goes and he can’t replace the battery, he’s dead.”

Payday loans are marketed as a quick fix for people who are facing a financial emergency like a broken-down car or an unexpected medical bill. But studies show that most borrowers use the loans to cover everyday expenses. “We have a lot of clients who come regularly,” said Marco (he asked us to use only his first name), a clerk at one of Advance America’s 1,900 stores, this one in a suburban strip mall not far from the Doral hotel. “We have customers that come two times every month. We’ve had them consecutively for three years.”

These types of lenders rely on repeat borrowers. “The average store only has 500 unique customers a year, but they have the overhead of a conventional retail store,” said Alex Horowitz, a senior research officer at Pew Charitable Trusts, who has spent years studying payday lending. “If people just used one or two loans, then lenders wouldn’t be profitable.”

It was years of stories like Dichter’s that led the CFPB to draft a rule that would require that lenders ascertain the borrower’s ability to repay their loans. “We determined that these loans were very problematic for a large number of consumers who got stuck in what was supposed to be a short-term loan,” said Cordray, the first director of the CFPB, in an interview with ProPublica and WNYC. Finishing the ability-to-pay rule was one of the reasons he stayed on even after the Trump administration began. (Cordray left in November 2017 for what became an unsuccessful run for governor of Ohio.)

The ability-to-pay rule was announced in October 2017. The industry erupted in outrage. Here’s how CFSA’s chief, Shaul, described it in his statement to us: “The CFPB’s original rule, as written by unelected Washington bureaucrats, was motivated by a deeply paternalistic view that small-dollar loan customers cannot be trusted with the freedom to make their own financial decisions. The original rule stood to remove access to legal, licensed small-dollar loans for millions of Americans.” The statement cited an analysis that “found that the rule would push a staggering 82 percent of small storefront lenders to close.” The CFPB estimated that payday and auto title lenders — the latter allow people to borrow for short periods at ultra-high annual rates using their cars as collateral — would lose around $7.5 billion as a result of the rule.

The industry fought back. The charge was led by Advance America, the biggest brick-and-mortar payday lender in the United States. Its CEO until December, Patrick O’Shaughnessy, was the chairman of the CFSA’s board of directors and head of its federal affairs committee. The company had already been wooing the administration, starting with a $250,000 donation to the Trump inaugural committee. (Advance America contributes to both Democratic and Republican candidates, according to spokesperson Jamie Fulmer. He points out that, at the time of the $250,000 donation, the CFPB was still headed by Cordray, the Obama appointee.)

Payday and auto title lenders collectively donated $1.3 million to the inauguration. Rod and Leslie Aycox from Select Management Resources, a Georgia-based title lending company, attended the Chairman’s Global Dinner, an exclusive inauguration week event organized by Tom Barrack, the inaugural chairman, according to documents obtained by “Trump, Inc.” President-elect Trump spoke at the dinner.

In October 2017, Rod Aycox and O’Shaughnessy met with Trump when he traveled to Greenville, South Carolina, to speak at a fundraiser for the state’s governor, Henry McMaster. They were among 30 people who were invited to discuss economic development after donating to the campaign, according to the The Post and Courier. (“This event was only about 20 minutes long,” said the spokesperson for O’Shaughnessy’s company, and the group was large. “Any interaction with the President would have been brief.” The Aycoxes did not respond to requests for comment.)

In 2017, the CFSA spent $4.3 million advocating for its agenda at the federal and state level, according to its IRS filing. That included developing “strategies and policies,” providing a “link between the industry and regulatory decision makers” and efforts to “educate various state policy makers” and “support legislative efforts which are beneficial to the industry and the public.”

The ability-to-pay rule technically went into effect in January 2018, but the more meaningful date was August 2019. That’s when payday lenders could be penalized if they hadn’t implemented key parts of the rule.

Payday lenders looked to Mulvaney for help. He had historically been sympathetic to the industry and open to lobbyists who contribute money. (Jaws dropped in Washington, not about Mulvaney’s practices in this regard, but about his candor. “We had a hierarchy in my office in Congress,” he told bankers in 2018. “If you were a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.”)

But Mulvaney couldn’t overturn the ability-to-pay rule. Since it had been finalized, he didn’t have the legal authority to reverse it on his own. Mulvaney announced that the bureau would begin reconsidering the rule, a complicated and potentially lengthy process. The CFPB, under Cordray, had spent five years researching and preparing it.

Meanwhile, the payday lenders turned to Congress. Under the Congressional Review Act, lawmakers can nix federal rules during their first 60 days in effect. In the House, a bipartisan group of representatives filed a joint resolution to abolish the ability-to-pay rule. Lindsey Graham, R-S.C., led the charge in the Senate. But supporters couldn’t muster a decisive vote in time, in part because opposition to payday lenders crosses party lines.

By April 2018, the CFSA members were growing impatient. But the Trump administration was willing to listen. The CFSA’s Shaul was granted access to a top Mulvaney lieutenant, according to “Mick Mulvaney’s Master Class in Destroying a Bureaucracy From Within” in The New York Times Magazine, which offers a detailed description of the behind-the scenes maneuvering. Shaul told the lieutenant that the CFSA had been preparing to sue the CFPB to stop the ability-to-pay rule “but now believed that it would be better to work with the bureau to write a new one.” Cautious about appearing to coordinate with industry, according to the article, the CFPB was non-committal.

Days later, the CFSA sued the bureau. The organization’s lawyers argued in court filings that the bureau’s rules “defied common sense and basic economic analysis.” The suit claimed the bureau was unconstitutional and lacked the authority to impose rules.

A month later, Mulvaney took a rare step, at least, for most administrations: He sided with the plaintiffs suing his agency. Mulvaney filed a joint motion asking the judge to delay the ability-to-pay rule until the lawsuit is resolved.

By February of this year, Kraninger had taken charge of the CFPB and proposed to rescind the ability-to-pay rule. Her official announcement asserted that there was “insufficient evidence and legal support” for the rule and expressed concern that it “would reduce access to credit and competition.”

Kraninger’s announcement sparked euphoria in the industry. One industry blog proclaimed, “It’s party time, baby!” with a GIF of President Trump bobbing his head. 

Kraninger’s decision made the lawsuit largely moot. But the suit, which has been stayed, has still served a purpose: This spring, a federal judge agreed to freeze another provision of the regulation, one that limits the number of times a lender can debit a borrower’s bank account, until the fate of the overall rule is determined.

As the wrangling over the federal regulation plays out, payday lenders have continued to lobby statehouses across the country. For example, a company called Amscot pushed for a new state law in Florida last year. Amscot courted African American pastors and leaders located in the districts of dozens of Democratic lawmakers and chartered private jets to fly them to Florida’s capital to testify, according to the Tampa Bay Times. The lawmakers subsequently passed legislation creating a new type of payday loan, one that can be paid in installments, that lets consumers borrow a maximum $1,000 loan versus the $500 maximum for regular payday loans. Amscot CEO Ian MacKechnie asserts that the new loans reduce fees (consumer advocates disagree). He added, in an email to ProPublica and WNYC: “We have always worked with leaders in the communities that we serve: both to understand the experiences of their constituents with regard to financial products; and to be a resource to make sure everyone understands the law and consumer protections. Educated consumers are in everyone’s interest.” For their part, the leaders denied that Amscot’s contributions affected their opinions. As one of them told the Tampa Bay Times, the company is a “great community partner.”

Kraninger spent her first three months in office embarking on a “listening tour.” She traveled the country and met with more than 400 consumer groups, government officials and financial institutions. Finally, in mid-April, she gave her first public speech at the Bipartisan Policy Center in Washington, D.C. The CFPB billed it as the moment she would lay out her vision for the agency.

Kraninger said she hoped to use the CFPB’s enforcement powers “less often.” She alluded to a report by the Federal Reserve that 40% of Americans would not be able to cover an emergency expense of $400. Her suggestion for addressing that: educational videos and a booklet. “To promote effective approaches to savings and particularly emergency savings,” Kraninger explained, “the Bureau recently launched our Start Small, Save Up initiative. It offers tips, tools and information to help consumers build a basic savings cushion and develop a savings habit. Later this year, we will be launching a savings ‘boot camp,’ a series of videos, and a very readable, informative booklet that serves as a roadmap to a savings plan.”

Having laid out what sounded like a plan to hand out self-help brochures at an agency invented to pursue predatory financial institutions, she then said, “Let me be clear, however, the ultimate goal for the bureau is not to produce booklets and great content on our website. The ultimate goal is to move the needle on the number of Americans in this country who can cover a financial shock, like a $400 emergency.”

Back at the Doral the month before her speech, $400 might not have seemed like much of an emergency to the payday lenders. Some attendees seemed most upset by a torrential downpour on the second day that caused the cancellation of the conference’s golf tournament.

Inside the Donald J. Trump Ballroom, the conference buzzed with activity. The Bush-era political adviser Karl Rove was the celebrity speaker after the breakfast buffet. And the practical sessions continued apace. One was called “The Power of the Pen.” It was aimed at helping attendees submit comments on the ability-to-pay rule to the government. It was clearly a matter of importance to the CFSA. In his statement to ProPublica and WNYC, Shaul noted that “more than one million customers submitted comments opposing the CFPB’s original small-dollar loan rule — hundreds of thousands of whom sent handwritten letters telling personal stories of how small-dollar loans helped them and their families.”

A couple of months after the Doral conference, Allied Progress, a consumer advocacy group, analyzed the new round of comments that were submitted to the CFPB in response to Kraninger’s plans. In one sample of 26,000 comments, the group discovered that 27% of the statements submitted by purportedly independent individuals contained duplicative passages, all of which supported the industry’s position. For example, Allied Progress reported that 221 of the comments stated that “I have a long commute to work and it’s better for me financially to borrow from Cash Connection so that I can still make it to work than to not take care of my car and lose my job because of absences.” There were 201 asserting that “I now take care of my parents and my children” and I “want to be able to enjoy life and not feel burdened by the additional expenses that are piling up.” Allied Progress said it doesn’t know “if these are fake people, fake stories, or form letters intentionally designed to read as personal anecdotes.” (Cash Connection couldn’t be reached for comment.)

Taking account of public comments is the final task before Kraninger officially determines whether to put the ability-to-pay rule to death. Whatever she decides, it’s a likely bet that decision will be challenged in court, the CFSA will weigh in and the payday lenders will still be talking about it at next year’s annual conference. A spokesperson for the CFSA declined to say whether the event will be held at a Trump hotel.

Read the MPR article here.