Congressional Republicans have been willing to back a lot of extremely unpopular causes for the sake of freeing their party’s corporate donors from the tyranny of Obama-era regulations. In 2017, GOP lawmakers went on the record in support of expanding coal companies’ right to dump mining waste in streams, preserving retirement advisers’ right to gamble with their clients’ money, allowing internet service providers to track and sell consumers’ data without seeking their permission, banning states from setting up retirement savings plans for private-sector workers (a betrayal of Federalism that serves no purpose beyond eliminating one of Wall Street’s potential competitors), and ending discrimination against serial labor-law violators in the bidding process for government contracts.
But even Mitch McConnell’s caucus has its ethical red lines — and helping predatory lenders trap the working poor into vicious cycles of compounding debt proved to be one. After all, even Republican governors had seen fit to crack down on usurious payday lenders in recent years.
Thus, instead of repealing the Obama administration’s reforms to payday lending through a highly visible congressional vote, the GOP has opted to kill them quietly through regulatory fiat. On Wednesday, the increasingly misnamed Consumer Financial Protection Bureau announced that it plans to rescind a rule that would have required payday lenders to establish borrowers’ capacity to repay their loans within 45 days or less before extending them credit.
The rule (which has yet to take effect) was designed to prevent lenders from seducing borrowers into loans they cannot afford — a practice that can be quite profitable for the former. While the initial interest rate on a payday loan is typically in the neighborhood of 15 percent, if such a loan isn’t paid on time — and/or is rolled into a second loan — interest rates can get very usurious, very fast. During the Obama administration, CFPB researchers found that most payday loans (possibly as high as 80 percent of them) are rolled over into a second loan within two weeks, and that the annual percentage interest rate on payday loans frequently exceeds 390 percent.
Critics of the rule argued that it would unnecessarily impair workers’ access to credit, while threatening many a payday lender’s “business model” — to which President Obama replied in 2016, “If you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, you’ve got to find a new business model.”
The CFPB’s new director, Kathy Kraninger, disagrees. “The Bureau is concerned that these provisions would reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products, subject to state-law limitations,” her bureau said in a statement Wednesday. It is true that many states heavily regulate (or ban) payday loans. But putting the responsibility for protecting America’s most vulnerable into the hands of state governments has not, generally, been a recipe for humanitarian outcomes in the USA.
Precisely how much the financial industry will benefit from the Trump administration’s latest gift remains to be seen. But the windfall that Wall Street accrued from the White House’s previous handouts is now coming into view.
On Wednesday, Bloomberg revealed that the Trump tax cuts have saved America’s 23 largest banks $21 billion in taxes last year — a sum larger than NASA’s entire budget, and more than double what the FBI spent on fighting all crime. During the debate over tax reform, many of these banks pledged to use their savings to reward employees and expand consumers’ access to credit. And perhaps some did — but collectively, the banks eliminated 4,300 jobs in 2018, while reducing their rate of lending growth.
In the final television ad of Donald Trump’s 2016 campaign, the GOP nominee informed America that “those who control the levers of power in Washington” do not “have your good in mind,” as a sign reading Wall St. flickered across the screen. Those words have never been more true.