Trump Jumps Gun, Counts CFPB’s Proposed Rule Scrapping Payday Protections as a Given to Make Highly Dubious Conclusions
Washington D.C. – File Under: Fantasy Land Economics. Today, Donald Trump’s Council of Economic Advisors released a new report that included one particularly eyebrow-raising claim: that unrestricted access to payday loans are good for household incomes. Despite a clear history of predatory practices and sky-high interest rates, Trump’s economic brain trust determined that repealing crucial borrower protections will somehow lead to better outcomes for Americans. Never mind that the CFPB is allegedly still studying public comments on their proposal to repeal the crucial ability-to-repay standard, the part of the previous rule that would prohibit predatory lenders from approving loans to vulnerable consumers they know cannot pay back the loans in time. The Trump report treats the rule’s repeal as a foregone conclusion.
Reaction from Derek Martin, Director of consumer watchdog group Allied Progress : “Only someone who lives in Donald Trump’s gaudy golden penthouse could be so out of touch to suggest payday loans are an economic benefit to households. Study after study show that payday loans are designed to trap borrowers into a cycle of debt, fueled by outrageously high fees and annual interest rates over 400%. President Trump has shown he has no problem lying to the public, but now his economic advisors are getting in on the act, too — dressing up specious claims in a fancy report.”
Added Martin: “If payday protections are repealed, industry would save over $7 billion annually. Perhaps they’ll use it to lower interest rates and refund all the consumers they’ve ripped off over the years, but we aren’t holding our breath.”
WHAT YOU NEED TO KNOW:
A New Trump Administration Report Assumes That The CFPB’s Payday Rule Will Be Removed Even Though The Rulemaking Process Is Ongoing—And Falsely Claims That Delaying The Payday Rule Will Increase Household Incomes.
In A New Analysis From The Council Of Economic Advisers, The Trump Administration Referred To The Payday Rule As A Regulation “In The Process Of Being Removed.”
The Trump Administration Referred To The Payday Lending Rule In An “Industry-Specific Analyses Of The Effects Of” Regulations That “Have Been Removed (Or Are In The Process Of Being Removed.”“The CEA has also conducted industry-specific analyses of the effects of several other regulations that were introduced during the years 2010–16 and have been removed (or are in the process of being removed) during the Trump Administration. One of these was the attempt by the Consumer Financial Protection Bureau (CFPB) to largely eliminate the payday lending industry.” [“The Economic Effects of Federal Deregulation since January 2017: An Interim Report,” The Council of Economic Advisers, 06/28/19]
The Trump Administration Claimed That The Delay Of The Payday Rule Would Increase Household Incomes By $7 Billion.
The Council Of Economic Advisers Asserted That “Twenty Notable Federal Deregulatory Actions Alone Will” Save Consumers” $220 Billion Per Year” And Will Raise “Real Incomes By $3,100 Per Household Per Year.” “The Council of Economic Advisers (CEA) estimates that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year. Twenty notable Federal deregulatory actions alone will be saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent.” [“The Economic Effects of Federal Deregulation since January 2017: An Interim Report,” The Council of Economic Advisers, 06/28/19]
The Trump Administration Claimed That The Delay Of The Payday Rule Would Have An “Impact On Real Income” Of $7 Billion.According to the chart titled “Table 1. Regulatory and Statutory Actions’ Annual Impact on Real Income Relative to a Regulatory Freeze, by Sampling Strata,” the “Payday, Vehicle Title, and Certain High-Cost Installment Loans 18-Month Extension of Transition Period and Delay of Applicability Dates” Would Have An “Impact on Real Income” of $7 billion. [“The Economic Effects of Federal Deregulation since January 2017: An Interim Report,” The Council of Economic Advisers, 06/28/19]
Payday Loans Actually Cost Borrowers At Least $2.6 Billion Annually Just In States That Don’t Restrict The Industry… And Some Reports Place The Cost At Up To $9 Billion Annually Nationwide.
“In States With No Restrictions On Payday Lending,” Payday Loans Cost “Borrowers At Least $2.6 Billion In Excess Fees Annually.” “Loan churning dramatically increases payday lending fees without providing borrowers with access to new credit. We estimate that loan churn in states with no restrictions on payday lending costs borrowers at least $2.6 billion in excess fees annually.” [Susanna Montezemolo, “Payday Lending Abuses and Predatory Practices: The State of Lending in America & its Impact on U.S. Households,” Center for Responsible Lending, September 2013]
PEW Charitable Trusts Reports That Loan Fees Reach $9 Billion Annually. “Pew has conducted extensive research on the high-cost small-dollar loan market over the past five years. The findings show that although these products offer quick cash, the unaffordable payments lead consumers to quickly take another loan to cover expenses. Twelve million Americans take out payday loans each year, spending $9 billion on loan fees.” [“Payday Loan Facts and the CFPB’s Impact,” Pew Charitable Trusts, 05/26/16]