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Payday lenders face new pushback from CFPB

U.S. Senator Warren talks with U.S. Consumer Financial Protection Bureau Director Cordray after he testified about Wall Street reform before a Senate Banking Committee hearing on Capitol Hill in Washington
U.S. Senator Elizabeth Warren (D-MA) (L) talks with U.S. Consumer Financial Protection Bureau Director Richard Cordray (R) after he testified about Wall Street reform before a Senate Banking Committee hearing on Capitol Hill in Washington September 9, 2014.

When it comes to the nation's finance industry, arguably nothing is quite as controversial as storefront payday lenders, who've faced criticisms from consumer advocates for years over predatory business practices. The Obama administration is siding with those advocates and is unveiling new protections today.

The payday loan industry, which is vilified for charging exorbitant interest rates on short-term loans that many Americans depend on, could soon be gutted by a set of rules that federal regulators plan to unveil on Thursday. People who borrow money against their paychecks are generally supposed to pay it back within two weeks, with substantial fees piled on: A customer who borrows $500 would typically owe around $575, at an annual percentage rate of 391 percent. But most borrowers routinely roll the loan over into a new one, becoming less likely to ever emerge from the debt.

While mainstream banks are already prohibited from such practices, in most states, payday lenders are nevertheless flourishing. The Obama administration's Consumer Financial Protection Bureau is intervening with new rules, including, as the New York Times' report explained, requirements that lenders "verify their customers' income and to confirm that they can afford to repay the money they borrow. The number of times that people could roll over their loans into newer and pricier ones would be curtailed." CFPB Director Richard Cordray said in a statement, "The very economics of the payday lending business model depend on a substantial percentage of borrowers being unable to repay the loan and borrowing again and again at high interest rates. It is much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey." This is the first time federal officials have tried to regulate these loans, and as the Washington Post's report noted, these new rules "still face months of review -- and potential court challenges." And before anyone asks how such a policy could possibly gain approval from a far-right Congress, remember that we're talking about regulatory changes that do not need lawmakers' approval. So long as the Consumer Financial Protection Bureau exists, efforts like these will continue on behalf of American consumers. There's some question, however, as to whether the CFPB can survive after this year's elections.

Republicans have spent years in staunch opposition to the protection agency, first trying to kill it before Elizabeth Warren could finish creating it, then trying to block confirmation of its board members so the agency couldn't do any work. If Donald Trump is elected, the Republican candidate has already announced plans to eliminate the CFPB -- if you're under the impression Trump is some kind of populist, you're mistaken -- and a GOP-led Congress would love nothing more than scrapping the law that created the bureau in the first place. But in the meantime, as the L.A. Times reported a few days ago, the Consumer Financial Protection Bureau is doing some impressive work.

ll Doak and his wife, Linda, were preparing to buy a new house this spring when a mortgage broker made an ominous declaration after scanning their credit report: "Oh my God, you're in trouble." The couple discovered five late payments on the loan on the home they were selling in Springfield, N.H. That threatened to cost them at least a percentage point more in interest for a mortgage in their native Connecticut, where they planned to retire. Doak, 63, said he quickly identified the source of the trouble: a snafu last year when their servicer, Nationstar Mortgage, gave them incorrect information about the timing of an escrow increase. Fixing the problem was much more difficult. After at least 15 calls to Nationstar in a month with no progress, Doak went to an attorney who filed a six-paragraph online complaint with the Consumer Financial Protection Bureau. "Within five days the thing was resolved," Doak said of reaching out to the agency. "What they did for me was just simply amazing."

As we discussed a couple of years ago, I've long considered the creation of the CFPB one of the more important breakthroughs for progressive governance in the Obama era. That its work on our behalf tends to happen far from the spotlight somehow makes it more impressive – the agency’s work isn’t showy, it’s just effective.