WASHINGTON–A former staff member at the Consumer Financial Protection Bureau is claiming President Trump’s appointees at the Bureau had manipulated its research process to justify altering a 2017 rule that would have cut back on high-interest payday loans.
On his last day on the job, Jonathan Lanning, a career economist, wrote a detailed memo in which he alleged numerous moves had been made by political appointees at the agency that he considered legally risky and “scientifically indefensible, including pressuring staff economists to water down their findings on payday loans and use statistical gimmicks to downplay the harm consumers would suffer if the payday restrictions were repealed,” according to the New York Times, which obtained a copy of the memo.
This week, the CFPB is expected to release the revised payday rule, which will no longer require lenders to assess whether customers can afford their fees before offering a loan, according to reports.
A ‘Signal Battle’
The Times noted payday lending “has been a signal battle of the Trump administration’s efforts to dismantle regulations, and that the original rule, finalized in late 2017, was supposed to be the first national regulation of payday loans. As CUToday.info has reported, the agency has been
working on the revision for more than a year.
Mick Mulvaney, the Trump administration budget chief, who was named acting CFPB director in late 2017, had indicated his intent was to delay and eventually undo the Obama-era payday lending restrictions, which were scheduled to take effect in summer 2019, according to two former senior bureau officials who discussed the issue with him, the Times reported.
Mulvaney has since left the administration and was replaced by Kathleen Kraninger as director of the CFPB.
‘Unusually Detailed Glimpse’
According to the Times’ report, Lanning’s 14-page memo provides an “unusually detailed glimpse into the Trump administration’s campaign against the so-called administrative state, where obscure officials labor over small tweaks to fine print that can reshape industries.”
Lanning, who worked at the Bureau for seven years, left in August for a position at the Federal Reserve Bank of Chicago.
Matt Leas, a spokesperson for the CFPB, told the Times the agency has “a fair, transparent and thorough” process for making rules.
“The comments received and evidence obtained are all taken into consideration before issuing a final rule,” he was quoted as saying. “The director is the ultimate decision maker and ensures that the decisions taken are justified publicly, as is required by law.”
In the memo reviewed by the Times, Lanning indicated the Bureau’s leadership, bolstered by a new layer of political appointees installed by Mr. Mulvaney, had “manipulated the reconsideration process to steer it toward that goal. As early as May 2018, while Mr. Mulvaney publicly claimed to be keeping an open mind about the reconsideration, bureau economists were told that Mr. Mulvaney had decided to abolish core provisions of the payday rule. They were directed to research only his preferred changes, without analyzing whether alternative approaches would yield a better outcome for consumers or industry.”
‘Fundamental Misunderstandings’
Lanning wrote that political officials with “fundamental misunderstandings” about the agency’s research pressured the Bureau’s economists to use “inaccurate and inappropriate” data.
While in the end, most of the changes Mulvaney’s team wanted to incorporate didn’t make it into the final draft, according to the Times, language was intended to show that the changes would cause consumers less harm than the bureau’s economists estimated.
For example, the Bureau had projected that its original rule would cut payday loan volume by at least 62%, a move that would save consumers some $4 billion a year in fees, according to calculations by The Times.
But Lanning asserted the Bureau leadership said since “ability to pay” requirements had not yet taken effect, abolishing them would have no practical effects.
For any revision, the economists were required, under the Dodd-Frank law, to analyze how the proposed changes would affect consumers. But one political appointee said that since the original rule’s “ability to pay” underwriting requirements — which asked lenders to assess whether a loan seeker could pay the fees — had not yet taken effect, abolishing them would have no practical effect on consumers, the Times reported.
‘Critical Errors’
Lanning’s memo also alleges that one person involved in the payday lending rule “attempts to selectively cite evidence” and had a pattern of making “critical errors on basic economics.”
The Times noted and CUToday.info has previously reported that payday lenders have praised the Bureau’s new approach. The original rule was “motivated by a deeply paternalistic view that small-dollar loan customers cannot be trusted with the freedom to make their own financial decisions,” said Dennis Shaul, the chief executive of the Community Financial Services Association of America, a trade group.
Consumer groups have said the Bureau’s new approach will be harmful to small-dollar borrowers.