Trump/Kraninger’s CFPB Preparing to Gut Ability-to-Repay Standard for Payday Loans Based on an Industry-Funded Study That Actually Underscores Why It’s Needed

Kathy Kraninger Thinks 40 Percent of Borrowers Not Knowing the Financial Risks Associated with Payday Loans is Acceptable — It’s Not 


WASHINGTON, D.C. — It was reported this week that the Trump/Kraninger-controlled Consumer Financial Protection Bureau (CFPB) is preparing its case for ending a critical consumer protection against the payday loan debt trap based on cherry-picked findings from a 2012 study funded by the payday loan industry. However, despite the new spin, the old study actually reinforces why the protections are needed today.

In payback to the predatory lending industry that has funneled over $2.2 million into Donald Trump’s inauguration and political committees, the administration is targeting a commonsense CFPB rule from the Cordray era requiring payday and car-title lenders to consider a borrower’s ability to repay before making a high-interest loan. CFPB director Kathy Kraninger will likely point to the payday lender-funded survey conducted by Columbia University professor Ronald Mann to argue most borrowers understand the risks of payday loans. But will she conveniently ignore the same study’s conclusions that 40 percent of borrowers did not know when they would be able to pay back a loan, or that 12% of borrowers remained trapped in debt after 200 days and wound up taking 14 two-week payday loans?  In fact, those very findings were cited as justification for the creation of the ability-to-repay standard.

“Kraninger’s strategy is to convince the public that there’s an acceptable number of Americans that can be blindly thrown into the predatory lender shark tank,”said Jeremy Funk, spokesman for Allied Progress. “The fact is even a payday industry-funded study came to the conclusion that 40 percent of borrowers don’t realize the huge financial risks associated with predatory high-interest payday loans, and that at least 12 percent fall completely into the debt trap as a result. Even if these estimates are on the low end, that’s still way too high a percentage of vulnerable borrowers for the CFPB to ignore or marginalize.  It’s exactly why the Bureau, when it was under more responsible management, demanded that the payday industry consider a borrower’s ability to repay in the first place.”

 Added Funk: “This is like if Trump’s EPA were to propose rolling back a water safety regulation based on a study paid for by big polluters finding most people would be fine, but in the fine print it showed 40 percent of kids would likely be poisoned and 12 percent would develop a long-term illness.  That proposal would be met with widespread condemnation. So should this one.”

WHAT YOU NEED TO KNOW:

The CFPB Is Relying On Industry-Funded Research To Dismantle Key Provisions Of The Payday Rule

Under Kathy Kraninger’s Leadership, The CFPB Is Using Columbia Professor Ronald Mann’s Industry-Funded Research To Eliminate Key Provisions Of The Payday Rule

The CFPB Is Using Mann’s Study To Argue That The Crucial Ability-To-Repay Provisions Are Unnecessary…

The CFPB, Under Mick Mulvaney And Kathy Kraninger, Used Mann’s Study To Argue That “Stringent Rules Requiring The Ability-To-Repay Standard Are Unnecessary.” “With the survey having determined that repayment ability was predictable in a majority of cases, CFPB leaders appointed under the Trump administration have pointed to the study as supporting the idea that stringent rules requiring the ability-to-repay standard are unnecessary. In court documents, the CFPB under former acting Director Mick Mulvaney cited Mann’s study as a key piece of evidence in support of ‘revisiting’ the underwriting requirements in the payday rule. Last year, Mulvaney sided with two payday trade groups that had sued the CFPB to invalidate the rule, which relies on federal law banning ‘unfair’ and ‘abusive’ practices.” [Kate Berry, “One study, two vastly different visions for CFPB payday rules,” American Banker, 01/23/19]

…Even Though His Research Shows That 40% Of Vulnerable Borrowers Don’t Know If They Can Pay Back Their Loans.

Mann’s Study Found That “60% Of First-Time Payday Loan Borrowers” Were Able To Predict When They Would Be Able To Repay A Payday Loan While “40% Of Borrowers Had No Idea When They Were Going To Pay Back A Loan.” “The Columbia professor has refuted how the CFPB under former Obama-appointed Director Richard Cordray interpreted his research, suggesting that the current rule overemphasized cases where consumers borrowed beyond their means. The study found that 60% of first-time payday loan borrowers accurately predicted within two weeks when they could repay a small-dollar loan. But it also indicated that in many cases the flip side was true — that 40% of borrowers had no idea when they were going to pay back a loan.” [Kate Berry, “One study, two vastly different visions for CFPB payday rules,” American Banker, 01/23/19]

The CFPB’s Previous Leadership Cited Mann’s Research While Drafting The Payday Rule And Its Ability-To-Repay Provisions.

Under Richard Cordray’s Leadership, The CFPB Cited Columbia Law Professor Ronald Mann’s Research While Writing The Payday Rule…

Under Richard Cordray’s Leadership, The CFPB Cited Ronald Mann’s Research “Over 30 Times” In Its Exiting Rule “To Impose Strict Underwriting Requirements For Payday Loans.” “When Columbia University law professor Ronald Mann undertook a survey of 1,000 payday loan customers to determine if they could estimate how long it would take to repay a loan, little did he know that the resulting study would become a lightning rod in the drafting of the first federal regulation for small-dollar lenders. The Consumer Financial Protection Bureau’s prior leadership cited Mann’s research over 30 times in an existing rule meant to impose strict underwriting requirements for payday loans. But signs now point to Trump-appointed CFPB Director Kathy Kraninger employing the very same study in a highly anticipated revamp of that rule, which is expected to scrap the ability-to-repay requirement in what would be a huge win for the industry.” [Kate Berry, “One study, two vastly different visions for CFPB payday rules,” American Banker, 01/23/19]

…To Argue That It Was Necessary To Assess Borrowers’ Ability To Repay Loans.

  • The CFPB Under The Former Director, Richard Cordray, Used The Same Study To Determine “That It Was Both Abusive And Unfair To Make A Loan Without Assessing A Borrower’s Ability To Repay It,” With “12% Of Borrowers Surveyed By Mann Still Remain[ing] In Debt After 200 Days.” “Still, the bureau under Cordray looked at the same data in Mann’s study and came to far different conclusions. While Cordray’s CFPB acknowledged that many borrowers predicted they would not remain in debt for longer than one or two loans, it found that Mann’s study did not address the problems experienced by the other 40% of borrowers, particularly those who ended up re-borrowing over and over again. Indeed, the CFPB found that 12% of borrowers surveyed by Mann still remained in debt after 200 days — far longer than they expected — and ended up taking out 14 two-week payday loans. Ultimately, the CFPB under Cordray relied on Mann’s study to conclude that it was both abusive and unfair to make a loan without assessing a borrower’s ability to repay it.” [Kate Berry, “One study, two vastly different visions for CFPB payday rules,” American Banker, 01/23/19]

Ronald Mann’s Research Was Funded By And Conducted With The Payday Industry

Mann’s Study Was Funded By A Payday Loan Trade Group And Conducted With A National Payday Lender.

The Study Was Not Only Funded By A Payday Loan Trade Group, But Also “Conducted In Cooperation With ‘A Large National Payday Lender.’” “In addition to receiving funding for the study from a payday lending trade group, Mann said the study was conducted in cooperation with ‘a large national payday lender,’ which was not named. Employees of the payday lender handed out the surveys to potential borrowers and the results were then mailed to Mann.”[Kate Berry, “One study, two vastly different visions for CFPB payday rules,” American Banker, 01/23/19]

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