After Mick Mulvaney was appointed as the acting director of the Consumer Financial Protection Bureau (CFPB), following the start of President Trump’s term, many consumer advocates feared that he would bring sweeping changes that would undo any of the progress that the CFPB had made in protecting consumers. A recent opinion piece published by New York Times Magazine highlighted many of the events following Mulvaney’s appointment that showed that many of those fears were, in fact, quite valid.
The CFPB was originally created with the assistance of Senator Elizabeth Warren, following the 2008 financial crisis. The agency was meant to be an economic watchdog for American consumers and protect them from predatory lenders. However, after its creation, opponents of the agency in the Republican party disputed efforts made by the CFPB. It was not surprising that President Trump would appoint someone who did not fully support the agency’s mission to run the CFPB soon after being elected.
Shortly after Mulvaney began working at the CFPB, he ordered a total hiring freeze, put many enforcement cases on hold and also informed the Federal Reserve, the agency that funded the CFPB a zero dollar budget, stating that the CFPB could handle its affairs with money already in their account.
Within weeks, Mulvaney announced that he would reconsider one of the bureau’s major long-term initiatives: rules to restrict payday loans, products that are marketed to the working poor as an emergency lifeline but frequently leave them buried in debt.
“Anybody who thinks that a Trump-administration C.F.P.B. would be the same as an Obama-administration C.F.P.B. is simply being naïve,” Mulvaney told reporters. “Elections have consequences at every agency.”
A payday loan is a short-term loan given in exchange for the borrower’s paycheck, along with a fee paid to the lender. Mulvaney was not supportive of the CFPB’s role in restricting payday lenders. While he agreed that these loans were not always financially sound, it was his stated position that borrowers should be wiser and not take out these loans without understanding the terms.
However, the CFPB and Warren previously viewed payday companies as predatory lenders who took advantage of borrowers who were desperate to get out of a bad financial situation.
‘These are entities that suck up billions of dollars a year from people making $25,000 a year. And it’s going into the pockets of the wealthiest people in the world.’
Borrowers take out these loans in a last-ditch effort to pay for an emergency expense but very rarely are informed of the terms in fine print, or misinformed of the consequences if they fail to pay the loan off timely. If a borrower cannot pay the loan off at the end of the period, the companies often roll the older loans into new ones with even higher fees.
Many states offer protection for borrowers when it comes to predatory lending and payday loans. However, it was Warren’s position and the original mission of the CFPB to provide uniform protections for all borrowers nationwide. Florida offers consumers who take out payday loans from licensed lenders certain protections, including the following:
- A borrower may borrow up to $500 per loan;
- A borrower can only have one outstanding loan at a time;
- The maximum fee that can be charged is 10 percent of the total amount borrowed, plus a $5.00 verification fee;
- The loan contract cannot exceed 31 days but can also not be less than seven days;
- Contract terms that otherwise limit your rights as a borrower are prohibited;
- A borrower must pay a previous loan in full and wait a full 24 hours before entering another loan;
- If the borrower is not able to pay the loan in full at the end of the term, the lender must give a 60-day grace period without any additional charge.
The New York Times Magazine piece also highlighted the fact that Mulvaney received campaign donations in the past from many different payday lenders, which leads one to question the motivation behind the CFPB’s sudden change in policy when it comes to payday loans. Mulvaney is now working as the President’s Chief of Staff, but the changes made at the CFPB have had longstanding ramifications when it comes to consumer protection from predatory lending practices.
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