Report: Congressional “Payday Puppets” Exposed

How More Than A Dozen Members of Congress Took Thousands in Campaign Cash From Payday Lenders Within Days of Taking Official Action to Benefit the Industry

EXECUTIVE SUMMARY

Billed by its purveyors as a “quick cash” solution for life’s unexpected financial emergencies, payday lenders peddle this modern-day snake oil to 12 million[1] hardworking men and women each year. For too many, a cycle of seemingly inescapable debt follows. They have fallen victim to an industry that has used harassment, intimidation, and threats to keep that cycle spinning for this $46 billion[2] industry.

When the Consumer Financial Protection Bureau (CFPB) was created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, it was charged with overseeing the payday lending industry among other responsibilities.[3] [4] Just a few years later, the CFPB released startling research detailing the damaging effects payday lending has on the financial wellbeing of consumers.[5] It found:

  • Only 15% of payday loan borrowers are able to repay their loans on time. The remaining 85% either default or take out a new loan to cover old loan(s).
  • More than 80% of payday loan borrowers rolled over (renewed) their loans into another loan within two weeks.
  • More than one-in-five new payday loans end up costing the borrower more in fees than the total amount actually borrowed.
  • Half of all payday loans are borrowed as part of a sequence of at least ten loans in a row.

It is findings like these that propelled the CFPB to carefully consider over a number of years and eventually promulgate a tough new rule designed to protect consumers from payday lending industry-induced debt cycles. These important safeguards are now under attack by payday industry-backed politicians in Congress and CFPB “Acting Director” Mick Mulvaney who took more than $60,000 in campaign cash from payday lenders[6] before his legally dubious installation by President Trump in November of 2017.[7]

This debt cycle being addressed by the CFPB is purposeful. It is by design. That’s how payday lenders make their money. As Daniel Feehan, then-president and CEO of payday lender Cash America, admitted at a 2007 conference, “[t]he theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.”[8]

In fact, an internal company training manual for payday lending giant ACE Cash Express depicting the cycle of a payday loan dubbed it, “The Loan Process.”[9] [10] Using a circular graphic that resembles an image commonly used for recycling, the manual shows a consumer taking out a loan with ACE, spending all of the money, not having the ability to repay the loan, and then either taking out another loan with ACE or having their account sent to collections and returning to the beginning of the cycle by taking out a new payday loan from ACE to get their account out of collections.

For most payday loan borrowers, this isn’t about a one-time loan to help cover an unforeseen financial emergency. Research from The Pew Charitable Trusts found most payday loans (nearly 70%) are used to cover recurring everyday expenses like a utility bill or food, while only 16% of loans are used to cover unexpected expenses.[11]

That’s exactly what payday lenders are counting on – customers who are already having trouble meeting their day-to-day living expenses who then take out a payday loan only to find it nearly impossible to pay off on time without taking out a new payday loan, and thus kicking off or extending the cycle of debt.

It is no wonder that Pew also found Americans favor more regulation of the payday lending industry by a margin of 3-to-1.[12] That, along with the impact these financial products have on consumers may explain why the CFPB ultimately finalized its thoughtfully considered, tough new rule to reign in the worst abuses of payday lenders.[13]

In addition to the broad support for reform found in Pew’s research, a bipartisan poll conducted on behalf of the Center for Responsible Lending found that a mere 10% of Americans had a favorable opinion of payday lenders.[14] In the face of such dismal polling numbers, one wouldn’t expect to see so many Members of Congress going to bat for such an unsavory and wildly unpopular industry.

But payday lenders have been preparing for this regulatory fight since the CFPB’s inception. The industry wields tremendous power not only over those it is able to ensnare with its risky financial products, but also over the levers of power in Washington. According to analysis conducted by Center for Responsive Politics, over the years payday lenders have given nearly $13 million in campaign contributions[15] to incumbent members of and candidates for the U.S. House of Representatives and U.S. Senate – the industry has also spent more than $63.5 million lobbying these bodies.[16]

What are these payday lenders hoping to accomplish by spending so lavishly to lobby Congress and shower these powerful legislators with so much campaign cash?

This report details how more than a dozen members of Congress from both parties received significant campaign contributions from payday lending industry executives and political action committees (PACs) just before or soon after taking official actions that benefited the industry. Taken as a whole, the timing of these contributions raises a serious question of whether they were made as a quid pro quo for official action. It is our hope that the serious questions raised by illuminating the suspicious, even crass timing of industry contributions and official actions taken, will lead to further investigation and discussion of these important issues.

NOTEWORTHY FINDINGS

This report includes numerous other examples of suspiciously timed campaign contributions.

  • Sen. Richard Shelby (R-AL): Accepted at least $46,250 from the payday lending industry in the days before and after taking official actions to help the industry.
  • Sen. Mike Crapo (R-ID): Two days after taking $1,000 from a payday lending industry PAC, Crapo voted against an amendment “that would create a deficit-neutral reserve fund” to “ensure the Consumer Financial Protection Bureau has the authority and autonomy to protect consumers from predatory lending.”
  • Sen. Pat Toomey (R-PA): Two days after joining Crapo in voting against the aforementioned amendment, Toomey took $10,000 from the payday lending industry followed by another $3,000 in the five days following his vote.
  • Sen. Tim Scott (R-SC): Just days after voting against an amendment that would “ban individuals convicted of fraud related to financial transactions, including predatory lending to veterans, from generally advertising or soliciting non-publicly traded securities,” Scott took $2,000 from a payday lending industry.
  • Rep. Alcee Hastings (D-FL): Hastings routinely takes actions to benefit the payday industry within days of taking their campaign cash. Case in point, in the days after authoring an op-ed defending the payday lending industry in the conservative Washington Examiner, he received $20,000 in campaign contributions from the industry.
  • Rep. Jeb Hensarling (R-TX): The powerful chair of the House Financial Services Committee voted to cap funding for the CFPB and require it to “consult” with bubreau-regulated industries “before implementing new rules.” The next day, Hensarling received $5,200 in campaign contributions from the payday lending industry.
  • Rep. Will Hurd (R-TX): Days after co-sponsoring legislation to repeal the law that created the CFPB, which regulates payday lenders, Hurd received $2,700 in campaign contributions from the payday lending industry.
  • Rep. Blaine Luetkemeyer (R-MO): One of the payday lending industry’s favorite members of Congress, Rep. Luetkemeyer often takes actions to benefit the industry within days of taking its campaign cash. For example, he received $5,000 in campaign contributions from the payday lending industry before voting to cripple the CFPB ability to hold industries like payday lenders accountable.
  • Rep. Patrick McHenry (R-NC): The week after sending the CFPB a letter “expressing concern” over the bureau’s work to rein in the worst abuses of the payday industry, Rep. McHenry received a $2,000 campaign contribution from a payday lending industry PAC.
  • Rep. Gregory Meeks (D-NY): After co-sponsoring a bill that would allow payday lenders to charge annual interest rates up to 391 percent, Rep. Meeks received $2,500 in campaign contributions from the payday lending industry.
  • Rep. Steve Pearce (R-NM): Four days after sending a letter to the Attorney General and FDIC protesting Operation Choke Point, a Department of Justice effort opposed by payday lenders that targeted unscrupulous lending practices, Rep. Pearce received $2,000 in campaign contributions from the payday lending industry.
  • Rep. Bruce Poliquin (R-ME): Within days of voting to cap funding for the CFPB which regulates payday lenders and requiring the bureau to consult with bureau-regulated industry before implementing new rules, Rep. Poliquin received $3,500 in campaign contributions from the payday lending industry.
  • Rep. Ed Royce (R-CA): Three days after voting to weaken the CFPB by subjecting its funding to additional bureaucratic red tape, Rep. Royce received $3,000 in campaign contributions from the payday lending industry.
  • Rep. Pete Sessions (R-TX): Three days before voting for legislation designed to undercut Operation Choke Point, a Department of Justice effort opposed by payday lenders that targeted unscrupulous lending practices, Rep. Sessions received $3,500 in campaign contributions from the payday lending industry.
  • Rep. Steve Stivers (R-OH): The day after sending a letter to the CFPB “expressing concern” over the bureau’s work to rein in the worst abuses of the payday industry, Rep. Stivers received $2,000 in campaign contributions from the payday lending industry.
  • Rep. Kevin Yoder (R-KS): No member of Congress has taken more money from the payday lending industry than Rep. Yoder. The investment has paid off time and again. After voting to cripple the CFPB ability to hold industries like payday lenders accountable by changing its structure, Yoder received $5,000 in campaign contribution from the payday lending industry.
  • Former Rep. and CFPB “Acting Director” Mick Mulvaney: A dishonorable mention, three days before sending a letter to the CFPB “expressing concern” over the bureau’s work to rein in the worst abuses of the payday industry, then-Rep. Mulvaney received $9,000 in campaign contributions from the payday lending industry. In the days prior to and following the letter, Mulvaney received a total of at least $18,800 in campaign contributions from payday lenders.

Continue Reading The Entire Report (PDF)


Endnotes

[1]Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts,  7/19/12

[2] Mandi Woodruff, “The $46 billion payday lending industry is in for a big blow,Yahoo! Finance, 2/10/15

[3] Nick Bourke, “Meaningful Payday Loan Reform Is Within Reach,” The Pew Charitable Trusts, 7/21/15

[4] Consumer Financial Protection Bureau, Press Release, 3/25/14

[5] CFPB Data Point: Payday Lending, The CFPB Office of Research, 3/14

[6] OpenSecrets search for Payday Lenders, Center for Responsive Politics, accessed 12/13/17.

[7]English v. Trump,” Gupta/Wessler, accessed 3/5/18.

[8] Thomas B. Edsall, “Making Money Off the Poor,The New York Times, 9/17/13

[9] Consumer Financial Protection Bureau, Press Release, 7/10/14

[10] Danielle Douglas, “Payday lender Ace Cash Express to pay $10 million over debt-collection practices,” The Washington Post, 7/10/14

[11]Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts,  7/19/12

[12] CFPB Proposal for Payday and Other Small Loans, The Pew Charitable Trusts, 7/28/15

[13] Consumer Financial Protection Bureau, Press Release, 10/5/17

[14] Bipartisan Support for Financial Regulation and Enforcement, Lake Research Partners and Chesapeake Beach Consulting, 1/22/15

[15] OpenSecrets.org Search for “Payday Lenders: Money to Congress,” Center for Responsive Politics, accessed 3/12/18.

[16] OpenSecrets.org Search for “Payday Lenders Annual Lobbying,” Center for Responsive Politics, accessed 3/12/18.

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