Payday Loans

Weakened Consumer Financial Protection Bureau

Communities of Color Will Feel the Effects of a Weaker Consumer Financial Protection Bureau

In early February, the Consumer Financial Protection Bureau (CFPB), led by Trump appointee Mick Mulvaney, dropped a lawsuit against four online installment loan companies for allegedly deceiving consumers and collecting debts that were not legally owed. This move is part of a new strategic plan to reduce the regulations of the CFPB and reshape its objective.

This move may be problematic for people of color as the predatory-lending industry typically targets low-income communities of color.  The CFPB has established itself as an agency that will take enforcement action against entities that are believed to have violated the law, such as demonstrating discriminatory practices. Mulvaney is looking to take the bureau in a different direction.

Ball and chain-debtThe former CFPB Director Richard Cordray initially filed the recently dropped lawsuit  in April 2017, but Mulvaney decided the bureau would no longer seek legal action against the lenders. The online installment loan companies named in the lawsuit are Golden Valley Lending, Inc., Silver Cloud Financial, Inc., Mountain Summit Financial, Inc., and Majestic Lake Financial, Inc. According to the CFPB, Golden Valley Lending and Silver Cloud Financial have offered loans with annual interest rates ranging from 440 percent up to 950 percent since 2012. More recently, Mountain Summit Financial and Majestic Lake Financial have begun to offer similar loans.

Similarly, all four companies are tribal lending entities wholly owned and operated by the Habematolel Pomo of Upper Lake, California, which is a sovereign nation located within the U.S. Thus, these financial companies are subject to less regulations in comparison to other lenders, such as not having interest rate caps and term length restrictions.

The lawsuit against the entities could have served as a probe into the practices of the companies and, possibly, resulted in settlements for deserving consumers. However, since the CFPB has halted the litigation, those consumers will not see any retribution from those lenders.

This presents the question: What will the actions of the CFPB look like under Mulvaney’s leadership?

If the agency’s latest actions are a sign of things to come, then there can be an expectation of a significant decrease in the enforcement action taken by the bureau.

Notably, Mulvaney decided in January to close an investigation into the marketing and lending practices of World Acceptance Corporation. The company previously contributed to his political campaigns as a member of Congress, along with other payday lending organizations. Yet, Mulvaney insists the campaign contributions he received from those companies will not pose any conflicts of interest.

The CFPB, an independent agency, was created to serve as a watchdog to protect consumers from unfair, deceptive, and/or abusive practices. After the financial crisis of 2008, the CFPB was formed to implement laws that regulated consumer financial products or services offered to consumers and to educate those consumers to make sound financial decisions. It is unclear how dropping lawsuits against alleged predatory lenders and suspending investigations into security breaches will keep the bureau in line with its own mission.