During a pandemic that has also harmed family finances, should the CFPB director weaken its enforcement arm? No! Heck no! Here's more on why U.S. PIRG and the state PIRGs joined 83 consumer and civil rights groups in a coalition letter urging Kathy Kraninger to "abandon" her October Surprise proposed reorganization that even industry lawyers call its "single most effective" effort to "weaken its own enforcement arm."
After the 2008 financial collapse, we worked to establish a new, broad coalition of consumer, civil rights, labor, community and other organizations that could fight back against the weakened but still politically powerful Wall Street banks and their allies, including the payday lenders and debt collectors. Our goal? To establish a strong new agency with just one job-protecting consumers. The Consumer Financial Protection Bureau was the jewel of the 2010 Wall Street Reform and Consumer Protection Act. From 2011-2017, under its first director, Rich Cordray, it recovered over $12 billion looted from over 31 million consumers, including veterans, servicemembers and senior citizens, by firms ranging from behemoth Wall Street banks to predatory triple-digit APR payday lenders. The CFPB was a new sheriff in town, fighting tricks and traps, filling potholes and holding wrongdoers accountable in the financial marketplace. We fought to win the CFPB and now we're fighting to get it back on the job.
Why? In 2017 the new president had installed Mick Mulvaney as acting director. He later nominated Mulvaney's acolyte Kathy Kraninger to a 5-year term as director. (I took the picture above at a protest outside CFPB on Mulvaney's first day; as you can read here, we're still fighting back against moves by the Senate-confirmed Kraninger).
Mulvaney took the unprecedented step of installing a set of powerful political staff above the career staff at the agency and diminished the authority of its most important offices, Students, Servicemember Affairs, Older Americans and Fair Lending. He paused enforcement. He made a failed effort to eliminate its public Consumer Complaint Database. He even tried to change its name so the word consumer would be buried and the mission would appear less prominent.
When Kathy Kraninger took over, she continued to pause enforcement. She also announced that financial education would become a key bureau priority. Of course, that strategy would only work if financial education began in grammar school, financial products were simplified and unfair practices were policed. Instead, she also unleashed predatory payday lenders by rescinding the core of a strong consumer protection rule that Cordray's team had spent 5 years drafting.
No amount of financial education cures the essential feature of a payday loan: it's a debt trap. That's why 17 states and the District of Columbia have not unleashed, but instead brought the payday lenders to heel. Their state laws limit payday loans to a 36% APR rate cap. That's why the Pentagon has long backed and also worked to strengthen the 2007 Military Lending Act, which extends that same protection to active duty servicemembers.
Yesterday, by a plurality of 83% of voters, Nebraska became that 17th state to join what's known as "PaydayFreelandia," by enacting a 36% APR rate cap on payday loans. (Note: The CFPB was not given the power to set interest rate ceilings, instead the Cordray rule would have required lenders to determine a consumer's "ability to repay" a loan; the Kraninger rule greenlighting payday lending rejects the need for such underwriting for payday loans.)
Now comes Kathy Kraninger's reorganization proposal, issued during a pandemic that has a double whammy: it's a public health crisis and it has also left the economy in a shambles, taking away jobs and income for many American families. The reorganization proposal also came one week before an election that could change the direction of the CFPB.
While the proposal may appear as just another bureaucratic shuffle, a closer look shows that the reorganization has a goal: to lessen the authority of enforcement attorneys to bring cases. As our letter states:
"Instead of strengthening the arm of the CFPB that holds predatory financial institutions accountable, your proposal would drastically weaken its authority, independence, and ultimately, effectiveness, leaving consumers vulnerable and defenseless. An industry law firm, Arent Fox LLP, even said that “the change amounts to the single most effective effort by the CFPB to weaken its own Enforcement arm since the Trump administration took over. It cuts across all industries and products overseen by the Bureau.”
This proposed reorganization could not come at a worse time, with consumers reeling from the current financial crisis resulting from the COVID-19 pandemic. The recent spike in average coronavirus cases per day, expiring consumer protections on a state and federal level, and current economic projections indicate that consumers will continue to face unprecedented financial challenges for the foreseeable future. With long term unemployment numbers on the rise, consumers are struggling to cover basic living expenses, making them more likely to resort to payday, car title, and other high cost loans, and build up credit card and other forms of debt."
As former CFPB director Rich Corday and two colleagues wrote in an open letter to Kraninger at the outset of this pandemic, "It is in difficult times that strong consumer protections are needed the most."
And industry-friendly "October Surprises" are needed the least.