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Can a New Kind of Payday Lender Help the Poor?


Tucked away in a taupe stucco mall in East Oakland, Community Check Cashing’s unassuming storefront blends in between the beauty salon and the immigration law office.

A neon sign flashes in the front window as customers walk in and out, the door rings every time they arrive: a middle-aged landscaper eager to cash a check before returning to work; an elderly woman joking with the cashier as she prepares a bank transfer to a friend; a young father and his son in matching Raiders outfit receive a warrant.

Three other check-cashing and payday loan stores in the neighborhood have bigger stores, bigger crowds, higher fees, and more impressive neon lights. But unlike its neighbors, the small and quiet CCC, now entering its 10th year of operation, is designed to run without making a profit.

“We face both ignorance and the occasional hostility,” said Community Check Cashing founder and executive director Daniel Leibsohn.

With only 1,300 square feet and an annual budget of $ 230,000, CCC serves the same clientele as its for-profit counterparts, but without much rewards, with fees and interest rates less than half that of competition. The organization has had, in Leibsohn’s words, “four near-death experiences” since it opened in May 2009. In the nearly nine years of activity since, there has been only enough income to pay. his salary – $ 60,000 a year, no benefits – less than half the time.

CCC’s charitable tax status has also not allowed it to shake off its associations with the larger and often unsavory industry of storefront financial services. The Consumer Financial Protection Bureau has started investigating the payday lending industry in 2012, promising close monitoring and enforcement. “We recognize the need for emergency credit. At the same time, it is important that these products actually help consumers rather than harm them, ”CFPB Director Richard Cordray said at the time. Later that year, and then again in 2015, Community Check Cashing’s bank closed the organization’s business accounts to avoid being associated with such a notorious industry, according to Leibsohn.

Ironically, or perhaps rightly so, an institution aimed at helping the underbanked has itself suffered from being underbanked.

Tens of millions of Americans live paycheck to paycheck, without a bank account; an account may seem like the more tax-responsible choice, but can accumulate expensive fees. About 30 million banked and unbanked people count on check tellers and payday lenders for convenient and fast cash, despite the stigma and added expense.

There is a growing consensus that the existing range of financial services does not meet the needs of millions of clients and that new options are badly needed, but there is little agreement on the best solution, and whether it should. come from government or the private sector.

Some cities, including Oakland, have unveiled municipal prepaid debit cards, while several start-ups are building app-based lending tools thinking of the underserved. An ambitious plan, most recently proposed by Senator Kirsten Gillibrand, would resuscitate banking services in about 30,000 postal branches. Basic postal banking services were available until 1966. “This idea could eliminate predatory practices in the payday lending industry overnight by providing an affordable and inexpensive alternative.” Gillibrand tweeted of his bill.

In-store check-cashing and loan services have not been widely seen as partners in bridging the financial services gap. Instead, they’re seen as predatory, taking advantage of clients who have nowhere to turn and trapping them in spinning cycles of high-cost debt. This slimy reputation was well deserved. And since the Trump administration has moved to relax regulations about payday lenders, these criticisms have taken on a new urgency.

Although technically not-for-profit, Community Check Cashing operates on a business model that is not that different from its for-profit competitors, albeit much less lucrative. CCC just has lower prices. And its small profits still add up, even if barely.

“There is this argument that payday lenders and check tellers charge exorbitant rates because it is the price of the service and the risk,” said Mehrsa Baradaran, professor at the University’s law school. from Georgia and author of How do the other half-banks. “The CCC shows that this is not necessarily true. It is possible to be profitable and sustainable and not charge such dreadful rates. Their risks seem to be under control and their numbers are quite good. ”

In addition to check cashing, which accounts for most of CCC’s transactions, the store offers money orders, wire transfers, cash payments for gift cards, payday loans up to $ 500, and loans. consumption up to $ 10,000.

Relatively low prices require a higher transaction volume, which is why the store is prominent in an area with heavy foot traffic. The grants and donations that often support nonprofits are particularly missing from Community Check Cashing’s bottom line. The store maintains itself almost entirely thanks to the income earned. “What CCC does very well is it shows this is a viable business,” said Baradaran.

Critics argue that check-cashing and payday loan storefronts offer many ways to help customers get money, but few services focus on helping them save that money: at best, services Storefront banking can help you steadfast, and at worst, they can trap you. under the surface of the creditworthiness.

In a move designed to (someday) cause its own obsolescence, CCC offers financial literacy workshops and personal counseling aimed at changing client behavior and, hopefully, preparing them for greater financial security over time. time. Loan clients are required to follow financial advice and provide three months of bank statements and pay stubs, as opposed to the storefront lender’s standard of one. “A lot of people just don’t want to put up with this to get our prices lower, but the people who do have been better borrowers,” Leibsohn said.

They may be chronically late, he said, but CCC’s default rate is close to zero: According to a review of the company’s books, it failed to recover $ 9,900 on over $ 1.8 million in payday loans at the end of last year.

Jose Rivera readily admitted that he was one of those late borrowers. The personal attention given has made him a loyal customer of Community Check Cashing since 2009.

“CCC shows that a publicly minded institution could follow this model and that it could work,” Baradaran said. Unlike other potential solutions for bank failures, this does not require millions of seed money, dozens of programmers, or any support – or policy change – from the government.

While the storefront barely operates in the dark, Leibsohn is eager to expand. He wants to expand the statewide consumer loan program and launch low-cost prepaid debit cards and check cashing through an app. Community check-cashing was never envisioned as a stand-alone, one-storey business. Leibsohn thinks they could do this in a store half the size with half the staff, as CCC manages administrative support across the chain. Community organizations could host stores or one-stop shops in their existing structures, serving their existing customers.

His early franchise plans were unsuccessful – “We get calls from interested people every now and then, although no one has yet” – but he’s hardly discouraged.

But for CCC or any hopeful imitator to work, they have to reach the millions of people who need them. In 2008, the Fruitvale Transit Village in East Oakland seemed like the perfect location for such a business: unique blend of social services and retail centered at the focal point of a dense and underserved community. Since then, Oakland has grown into one of the hottest real estate markets in the country and Fruitvale one of the hottest areas in that market.

“Gentrification is a real problem for us,” said Leibsohn. Every day, the square is filled with new creditworthy local residents – the kind Leibsohn fears his tiny storefront will see as an eyesore, if not outright tax predator. “Recently we had to put a ‘non-profit, low price’ listing because people come to a check-cashing store here – they’re upset.”

Yet the nature of Fruitvale’s gentrification seems different from that of other California cities. This March, a UCLA studyThe Latino Politics and Policy Initiative found the Fruitvale Transit Village to be a key player in preventing displacement, while increasing local incomes and levels of education. “The city and local governments should view Fruitvale Village… as a case study for positive community transformation,” the study concludes.

This type of transformation means fewer customers for storefront financial services. Some of CCC’s loyal and displaced customers still make it to the small suburban storefront, but monthly check-cashing transactions tend to drop as the neighborhood gets closer. Perhaps the best hope for community check-cashing, and many underserved and underbanked Americans, still lies in the potential of other showcases like this one, still the first and only of its kind.

Upcoming changes to CFPB’s payday loan rule


Could it be that the CFPB, under the leadership of the new director general Kathy kraninger, will he act directly to eliminate the most controversial provisions of his payday loan rule? According to sources cited by American banker, CFPB will remove controversial underwriting rules that would have required lenders to establish a borrower’s repayment capacity before offering a short-term loan product for a small amount.

As it is, lenders should check a borrower’s income, debt, and spending habits to assess their borrowing thresholds. Lenders can avoid this stipulation if they change their loan types from payday loans which must be repaid in full on the borrower’s next payday to installment loans, which are paid over a set period of time which is agreed upon at the start of the borrower’s payday. ready.

Supporters of the rule as written note that this provision can help consumers avoid debt traps by preventing them from renewing their unpaid payday loan every 30 days, resulting in new rounds of fees. and costs. Opponents counter that regulation will simply push a majority of short-term lenders out of business because they won’t be able to cope with rising underwriting costs or completely change their business model to accommodate a different subscription type.

Last October, the CFPB announced that he would “review” the rules. Sources are now reporting that the CFPB has decided to scrap the provision altogether.

If these reports are true, the change will almost certainly bring a lot of controversy in its wake. Consumer advocates have long argued that the ability to repay provisions is key to preventing customers from getting locked into debt cycles with short term, low value lenders.

But since the departure of the former general manager Richard Cordray in late 2017 – and under the leadership of CFPB interim director Mick Mulvaney – the agency began to take a different stance on both lenders and the rules created to control them. In April, Mulvaney sided with two payday lending groups that sued the CFPB. to try to overturn regulatory restrictions created by the new rules.

CFPB argued in court that payday lenders would suffer “irreparable harm” as a result of 2017 final pay rule, and that it was “in the public interest” to reopen the regulations.

“Lenders across the market will face substantial drops in their income once the rule’s compliance date goes into effect, which will lead many to exit the market,” the agency said in a motion.

Others, however, are not so sure about the new logic of the CFPB, noting that in the absence of new research on payday loan done over the past year, it is not clear exactly how the CFPB was able to justify its decision to roll back the regulations without ever letting them see the light of day.

“Completely hollowing out the repayment capacity requirement is going to be difficult for the Bureau to defend,” said Casey Jennings, lawyer at Seward & Kissel and former lawyer for the CFPB Regulatory Bureau, who worked on the 2017 rule.

It is expected that in the coming days or weeks (depending on when the the government reopens, among other factors), the CFPB will publish a proposal to reopen the rule for public comment, thus kicking off the process to overhaul the 1,690-page rule from 2016.

The latest proposal is also expected to repeal the limits imposed by the single-consumer repeat-borrowing rule, as well as the underwriting requirements – but it will leave payment provisions that would limit the number of times a lender can try to untouched. extract loan payments. directly from consumers’ bank accounts, according to sources.

It is not the news that makes consumer groups happy.

“We expect the CFPB to weaken the payday rule to the point that it has no practical value,” said Alex Horowitz, senior researcher on the little dollar loan project to Pew Charitable Trusts.

However, this is news that is a great relief for industry groups.

“The rule as previously proposed was really just an attempt to penalize the industry,” said Jamie Fulmer, senior vice president at Advance America in Spartanburg, South Carolina. “There has been a tremendous amount of academic research from both sides that has been put forward, but the Bureau has only dwelled on research studies that supported their positions and rejected the counter-arguments. “

If the rule change goes as planned, the case will likely return to court, with consumer advocates suing the CFPB. Various consumer lawyers have argued that these consumer groups could have a solid chance in court, because under the Administrative Procedure Law they will have to prove that this regulatory change is not “arbitrary and capricious”.

“The underlying research hasn’t changed; the only thing that has changed is the agency director, ”Jennings said. “I think it’s entirely possible that a court will find this arbitrary and capricious. “



About the study: UK consumers see local purchases as essential for both supporting the economy and preserving the environment, but many local High Street businesses are struggling to get them in. In the new Making Loyalty Work For Small Businesses study, PYMNTS surveys 1,115 UK consumers to find out how offering personalized loyalty programs can help engage new High Street shoppers.

Google bans predatory payday loan apps from the Play Store

Google bans predatory payday loan apps from the Play Store

Google has fought predatory loans for a while, but now he’s leading this fight in his app store. the the Wall Street newspaper possesses learned that Google recently banned Play Store apps with “deceptive or harmful” personal loans that have an annual percentage rate of 36% or more, like many payday loans. A spokesperson said the expanded financial policy, implemented in August, was aimed at “protecting users” from the term “exploiters.”

Apple does not have a similar ban, but told the WSJ that it regularly revises its App Store rules to “respond to new or emerging issues”.

Unsurprisingly, affected lenders are not happy – this forces them to offer lower rates or to pull out altogether. Online Lenders Alliance CEO Mary Jackson has repeatedly asserted that corporate practices are allowed, arguing that the ban harms “legitimate traders” as well as customers looking for “legal loans.”

While there aren’t too many people to mourn the lack of these loans, Google’s move raises the question of whether store operators should ban apps whose business models are ethically fragile, but still legal. . A little like retailer approaches to electronic cigarettes, tech giants may have enough power to decide whether entire business categories can be successful or not.

All products recommended by Engadget are selected by our editorial team, independent of our parent company. Some of our stories include affiliate links. If you buy something through any of these links, we may earn an affiliate commission.

Camps prepare to put title loans on the ballot – Arizona Capitol Times


More than a decade after Arizona voters rejected an attempt by the payday loan industry to make permanent a law allowing high-interest loans, the streets of the city are still littered with garish signs promising fast cash flow with no credit check required.

Fintech seeking to end ‘payroll poverty cycle’ launches in Ireland


Wagestream, a British fintech start-up whose backers include tech titans Jeff Bezos and Mark Zuckerberg, is launching its services in Ireland.

The London-based company has developed what it describes as a ‘pay as you go’ platform that allows employees to access their pay earlier for a lump sum.

Wagestream, which was only founded this year, is on a mission to end what it calls the “payroll poverty cycle” experienced by thousands of households struggling to make ends meet.

Its platform allows staff at participating companies to have access to a portion of their salary up front, ensuring that they don’t have to be overdraft or depend on credit cards or payday loans. at high interest.

More than 25 employers with over 25,000 employees are already using the service in the UK, after it launched there last month. Participants include the David Lloyd gym chain.

Breathtaking results

“The early results have been amazing: From eliminating financial stress to improving productivity and retention, shortening the link between work and reward is good for businesses and their employees,” said Peter. Briffett, co-founder and CEO of Wagestream.

The former Managing Director of LivingSocial for the UK and Ireland said the start-up was eager to work with Irish companies who wanted to give their employees “greater financial freedom and control”.

Adam Hankin, former head of sales for Linked Finance and LivingSocial, has been appointed Managing Director of Ireland for Wagestream, which is also supported by social impact charities such as the Joseph Rowntree Foundation.

Mr Hankin said that despite strong economic growth, recent figures from the Central Bank showed that many Irish households were still in financial difficulty.

He cited a study recently released by the Central Bank which showed 350,000 people were clients of pawn shops in Ireland last year, borrowing € 268million at interest rates of up to 288% .

Paralyzing problem

“The crippling problem with predatory high interest lenders remains: the Irish workforce should be given the freedom to access their earned income, thereby removing the inflexibility they currently face with the monthly pay cycle,” said M Hankin.

According to Wagestream, its service can be deployed by businesses without impacting treasury, payroll, or timing processes, and employers can choose to implement it as an uninteresting option for teams.

Last month, the start-up raised £ 4.5million (€ 5.09million) from backers including QED Investors, Firestartr and Village Global, a $ 100million venture capital firm. (88 million euros) that promises mentorship from leading tech figures such as the founders of Amazon, Microsoft, Facebook and LinkedIn.

The London Mayor’s Co-Investment Fund and Fair by Design Fund, whose charities include Big Society Capital, Nominet Trust and the Joseph Rowntree Foundation, also support Wagestream.

Regulators urge banks and credit unions to consider offering low-value loans – consumer advocates call ‘terrible idea’


Regulators are pushing for banks, credit unions and savings associations to offer consumers and small businesses low-value loans to help offset the financial burden caused by the national coronavirus emergency. But consumer advocates say the loans could “trap people in a cycle of repeated borrowing and crushing debt.”

The Board of Governors of the Federal Reserve System, the Office of Consumer Financial Protection, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency issued a joint letter encouraging banks and credit unions provide small loans to their customers.

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“Responsible small dollar loans can play an important role in meeting the credit needs of customers due to temporary cash flow imbalances, unforeseen expenses or income disruptions during times of economic stress or disaster recovery,” said writes the agencies in the letter.

The letter comes after a record 3.28 million Americans filed for unemployment benefits last week as businesses shut their doors in the wake of the coronavirus pandemic, laying off or laying off millions of people. people.

Regulators said the loans could include open-ended lines of credit, closed installment loans or “appropriately structured” single payment loans.

Consumer advocates have warned that these small loans could look like payday loans with high interest rates that have proven to trap people in cycles of debt.

“Loans should be offered in a way that offers fair treatment to consumers, complies with applicable laws and regulations and is consistent with safe and sound practices,” the agencies said.

Regulators also said banks and credit unions should consider working with consumers and businesses who can’t repay loans as structured to find ways to repay the principal without needing to borrow another loan. .

But consumer advocates have warned that these small loans could look like payday loans with high interest rates that have proven to trap people in cycles of debt. A group of advocacy organizations, including the Center for Responsible Lending, the Consumer Federation of America, the NAACP and the National Consumer Law Center, issued a joint statement saying that banking regulators “have opened the door for banks to exploit people, rather than to help them. “

“Essential consumer protection measures are missing from this guidance,” the organizations wrote. “By saying nothing about the damage caused by high interest loans, regulators are allowing banks to charge exorbitant prices when people in need can least afford it.”

Consumer groups have also argued that banks should not charge interest rates on small loans above 36% when financial institutions themselves have access to interest-free loans from the federal government. The statement said consumer groups “will watch whether banks offer loans that help or loans that hurt.”

The Federal Reserve and the National Credit Union Administration declined to comment on the statement by consumer advocates. Other regulators did not immediately return MarketWatch’s requests for comment.

Business groups have argued that their industries will be able to support consumers throughout the coronavirus outbreak. “Emergencies like the COVID-19 pandemic arise when the not-for-profit model of credit unions is fully displayed,” Jim Nussle, president and CEO of the Credit Union National Association, said in an email . “We have a long tradition of responding to our members in times of emergency, providing short-term, low-interest, no-interest loans to help people get through such uncertain times. “

Consumer Bankers Association President and CEO Richard Hunt noted in a statement that previous guidance from regulators “has cut the ability of banks to provide customers with short-term liquidity.”

“The flexibility given by regulators, combined with their statement today, will help banks adapt more easily to meet consumer demands,” Hunt said. A spokesperson for the Consumer Bankers Association added that small loans would be subject to the same regulations as other banking products.

Earlier this month, banking regulators announced they would account for lending and retail banking activities aimed at helping low- and moderate-income people, small businesses and smallholdings during the COVID outbreak. 19 to meet the objectives of banks under the Community Reinvestment Act.

Other financial regulators have also taken steps to help consumers during the coronavirus outbreak. The Federal Housing Finance Agency, for example, ordered Fannie Mae FNMA,
and Freddie Mac FMCC,
order mortgage agents to grant a 12-month forbearance on home loans to borrowers who have encountered financial difficulties due to the national emergency.

Read more: Equifax says it will work with lenders and creditors to help reduce impact of coronavirus crisis on U.S. credit reports

This story has been updated.

Payday Loan Verdict Paves Way For More Lawsuits | New


A test case for regulations governing irresponsible lending could pave the way for further lawsuits against payday lenders, according to a lawyer acting for a group of claimants who had been encouraged to enter a “debt cycle.”

In Kerrigan vs. Elevation, the High Court found that payday lender Elevate Credit International Limited – better known as Sunny – had violated Consumer Credit Sourcebook requirements by allowing customers to borrow money multiple times.

The case was brought by a sample of 12 plaintiffs chosen from a group of 350. They alleged that Sunny’s credit rating was inadequate; that loans should not have been granted in the absence of clear and effective policies; and that the company breached its legal obligation under a section of the Financial Services and Markets Act 2000.

Sunny, who went into administration shortly before the judgment was handed down, loaned at high interest rates and promised the money would be in clients’ accounts within 15 minutes. In one case, an applicant took out 51 loans with the company, accumulating a total of 119 debts in one year.

In the judgment, HHJ Worster said: “It is evident (…) that the defendant did not take into account the fact or pattern of repeated borrowing when considering the potential for negative effect on the financial situation of the applicant.

“There has been no attempt to determine whether there was a borrowing pattern indicating a cycle of indebtedness, or whether the timing of the loans (for example, repaying a loan very shortly before the application another) indicated an increasing dependence or dependence on … credit. Simply put, the long-term impact of the loan on the customer has not been taken into account.

In response to the “unfair relationship” allegation based on repeated borrowing, the judge said the lender failed to take into account the financial hardship that repeated borrowing could result in an unfair relationship.

However, the negligence claim for bodily injury (aggravation of depression) was dismissed.

The plaintiffs were represented by consumer credit law specialist Barings Solicitors, while Elevate Credit International Limited was represented by London law firm Edwin Coe LLP.

Erich Kurtz, director of Barings Solicitors, said the judgment confirmed that when a consumer made repeated requests for payday loans, lenders would violate their obligations under the Consumer Credit Sourcebook for failing to perform a proper assessment which could then amount to an unfair relationship.

He added that payday lenders could face more lawsuits in the years to come if they remain in business. “Over the past two years, lenders have expressed concerns about the lack of clarity in their regulatory obligations, this judgment should help with this clarification,” he said.

A case against another U.S.-backed payday lender is due to be heard by the High Court in December.

Comments on this article are now closed.

Hamilton, Ont. Votes to limit number of payday loan outlets


A Hamilton city councilor’s proposal to cap the number of payday loan outlets in the city broke another hurdle Tuesday when it was unanimously approved by the city’s planning committee.

Com. Matthew Green proposed the legislation, which will allow only one lender to operate in each of the city’s 15 neighborhoods, in an effort to curb “predatory” behavior by payday loan companies. He says businesses target low-income communities, whose members often turn to businesses in desperation, but take on more debt due to the high interest rates and fees that come with loans.

Green said it would become law if ratified at a meeting in two weeks, giving council time to consider an exemption from the proposed cap requested on Tuesday by a counselor at Flamboro Downs casino in his neighborhood.

Despite the exemption request, Green said he believed the cap “will pass unanimously, if not overwhelmingly.”

Hamilton is one of the few cities in Ontario to consider such legislation, adding to its ongoing crusade against payday loan companies. Previously, it required them to be licensed, educate the public about comparing their rates with traditional lenders, and share credit counseling information with clients.

Green’s attack on lenders came after he discovered that $ 300 loans cost as much as $ 1,600 due to fees and annualized interest rates he estimated at around 546%.

“This is not a way for people living in poverty to try to get out of it,” he said. “The targeting of our downtown neighborhoods was a bit pernicious… we had more payday loans in some miles than Tim Hortons.

He believes payday loan companies should be abolished, but was content to fight for the cap by neighborhood because the provincial and federal governments allowed the process to continue and he lacks the power. to cancel them.

The Ontario government reduced the cost of a payday loan from $ 21 to $ 18 per $ 100 in 2017 and lowered it again to $ 15 this year.

The Canadian Consumer Finance Association, formerly the Canadian Payday Loans Association, has argued that it provides a bridge for borrowers who are rejected by banks and would otherwise have to turn to illegal lenders.

Tony Irwin, CEO of the Canadian Consumer Finance Association, wondered why Hamilton had considered such legislation when he noticed that the payday lending industry had been shrinking for years.

“It’s a very difficult industry to operate and there is a lot of competition,” Irwin said. “As the sites have more difficulty operating, some will face a difficult decision to shut down.”

The policy that councilors will vote on will not immediately reduce the number of payday loan businesses in the city to 15 to match its number of wards, as it will be acquired in existing businesses, but will prevent new ones from opening, said Tom Cooper, director of the Hamilton Roundtable on Poverty Reduction.

He noted that a “community crisis” has arisen in the 40 payday loan outlets he counted in Hamilton, most of which are “clustered” in the inner city of the city.

Cooper said proximity creates a “predatory” scenario because “we often see people who owe money go to one payday loan outlet, then go to a second to pay off the first, then a few doors. further (in another) to pay the second one. “

Three Questions: Professor Paul Goldsmith-Pinkham on Payday Loans and Consumer Protection


What role do payday lenders play in the financial lives of low-income Americans?

Payday lenders extend credit by holding customers’ personal checks for a few weeks and providing cash in the absence of other traditional sources of credit (eg, credit cards). Research seems to show that consumers who have particular difficulty accessing traditional sources of credit are more likely to apply for payday loans. This may be due to reasons other than bad repayment history – they may just lack credit history or formal loans. (See Morgan, Strain and Seblani, 2012 and Bhutta, Skiba and Tobacman, 2015.)

Will changes to payday loan regulations lead to debt, as some consumer advocates claim, or affect the availability of credit for low-income borrowers, as industry groups claim?

The answer is probably “it depends”. Research on this topic finds conflicting evidence for the impact of payday loans. There are various reasons for this, but it is probably due to the heterogeneity in the use of payday loans. For some borrowers, payday loans are used as bridging loans to mitigate shocks, and these borrowers find them extremely useful. In a speech to the California Department of Business Oversight in November 2018, economist Adair Morse argued that since borrowers are grateful for the option of payday loans, debating their inherently bad character is irrelevant; the system may benefit from “product improvements” which will better determine who qualifies for such loans and how repayment terms may vary depending on very specific circumstances.

However, other payday borrowers seem to borrow repeatedly in a way that is likely financially damaging. In a 2011 article, “The Real Costs of Accessing Credit: Evidence from the Payday Loan Market”, Brian T. Melzer wrote: “I find no evidence that payday loans alleviate economic hardship. On the contrary, access to the loan makes it more difficult to pay mortgage, rent and utility bills. These contrasting points make it difficult to assess a clear negative or positive effect of payday loans. This is made particularly difficult because many payday borrowers are low-income and potentially vulnerable to predatory lending, but are also excluded from traditional credit markets and thus benefit from access to payday loans.

To what extent are consumers currently protected by the CFPB?

It is difficult to measure and difficult to assess. The evidence I’ve seen seems to suggest that if banks complain about cumbersome CFPB regulations, it doesn’t translate into big negative effects on consumer lending.

CFPB lawyer who helped dilute payday loan rule exploited high cost auto lender


A staff attorney, suspected of manipulating evidence that led to the removal of the Consumer Financial Protection Bureau’s payday loan rule, operated a business in Texas for three years whose model was criticized as predatory, according to records obtained by a watch group.

Christopher G. Mufarrige has purchased a certificate of ownership for a company named CNJ Auto Finance in Houston, Texas, in 2008, and led the company until 2011. Pictures of site taken at the time indicated that CNJ Auto Finance was a “buy here, pay here” car dealership. These companies provide used car loans to customers with low credit at a high interest rate and quickly repossess the vehicles in the event of default. Dealers often resell the same used car multiple times to different borrowers, much like payday lenders try to get multiple loans in a single borrowing cycle.

Mufarrige and a person of the same name had separate Buy Here Pay Here stores at the same address; the apparent parent’s activity lasted from 2012 to 2016, when the Texas Office of Consumer Credit Commissioner closed it for unlicensed use.

More from David Dayen

Mufarrige was the subject of a New York Times story last week involving a memo from the former CFPB economist, who alleged that several appointees used bogus statistics and gimmicks to downplay the value of payday lending regulations. The original rules, established under a previous regime, were targeted by Trump’s CFPB, led by Kathy Kraninger. In a few days, Kraninger’s CFPB is expected to release a revised payday rule, which removes the key feature: it won’t require payday lenders to assess their clients’ ability to repay their loans.

After leaving CFPB last year, Mufarrige now works as a partner in antitrust and competition practice at Wilson sonsini, a DC law firm. Mufarrige received his BA in Economics from Texas Christian University, the same state where CNJ Auto Finance was located.

Mufarrige refused to respond officially to the Perspective. The CFPB did not respond to a request for comment.

During the Trump administration, there have been numerous instances of appointees who previously worked for industries they now claim to regulate. The situation of Christopher G. Mufarrige seems to take these conflicts of interest to the extreme.

Derek Martin, director of Allied Progress, who obtained the information on Mufarrige, stressed the Trump administration’s loyalty to corporate interests, especially in the area of ​​high-cost loans. “We knew that predatory lenders had gained tremendous influence in the White House by pumping millions of dollars into Donald Trump’s campaign and personal affairs fund,” Martin said. “We didn’t know there was also a man inside who was sabotaging the conclusions of the career bureau economists.”

TO FOLLOW THE STATUTES Regarding administrative procedures, CFPB had to demonstrate that years of previous research which informed the original troubleshooting rule was wrong, and establish an evidentiary basis to revise the rule. People have been asked to guide this process towards the conclusion the Trump administration intended to remove the ability to pay.

Mufarrige was one such person, brought in as a “lawyer-adviser” to then-director Mick Mulvaney in October 2018. (Kraninger was confirmed in December.) Mufarrige spent over a year in the office. , and the Times noted that he “had often criticized the 2017 rule as flawed and unnecessary”.

According to the note from former CFPB economist Jonathan Lanning, Mufarrige had a “tenuous and often imperfect understanding of economics.” He has repeatedly attempted to “cite evidence selectively”, “to argue for conclusions based on presumptions” and to make “critical errors on basic economics”. The memo also alleges that Mufarrige was responsible for senior officials misrepresenting aspects of the payday rule evidence and analysis to the press. Lanning pointed to Muffarige’s conflicting claims to justify certain conclusions, saying at one point that “costs by default [on payday loans] are high ”, and sentences later indicating“ the default costs are low ”.

Mufarrige “was fighting to have his name removed” from the list of employees working on the revised payday loan rule, a requirement under the Congressional Review Act. Some in the office believed Mufarrige’s friendship with Ronald Mann, a professor who worked for a payday loan business group, explained his reluctance to be on the list of contributors.

Lanning reflected on Mufarrige’s motivations for his attacks on the wage rule. “It seems like a really personal issue for him,” Lanning wrote in a comment attached to the memo.

He didn’t know how personal it was.

The payday loan rule also covers auto title loans, where a person exchanges title to their vehicle for cash quickly. This differs from Buy Here Pay Here transactions, where individuals buy used vehicles at subprime interest rates. But both practices involve high cost loans.

Consumer advocates have accused Buy Here Pay Here resellers of taking advantage of the vulnerable and desperate. They target poor and vulnerable clients, buying lists of bankrupt filers and sending them direct mail. About a quarter of Buy Here Pay Here customers go into default, according to the New Jersey attorney general’s office.

When CNJ Auto Finance, the company attributed to Christopher G. Mufarrige, was active, the Buy Here Pay Here outlets makes $ 80 billion in loans per year, with more lots than new car dealers.

CNJ has encountered its fair share of legal problems. In August 2010, Mufarrige himself was continued by Houston’s 1st Choice Auto Auction, which alleged it had taken possession of $ 194,000 in luxury vehicles without making payment. CNJ “refused to return” or “pay for the vehicles,” one Bentley and four Mercedes, according to the complaint. The case was dismissed in March 2011 for unknown reasons.

The Klein Independent School District in Klein, Texas also hit Mufarrige’s business with a trial in 2013 over $ 2,926 in unpaid property taxes on a dealer’s inventory lot. This case was also dropped later in the year.

A second Buy Here Pay Here dealership named CAJ Auto Finance was located at the same address in Houston, assigned to a John Mufarrige, a relative of Christopher G. Mufarrige. A John Mufarrige appears on LinkedIn as a 30-year computer science student at Lone Star College in Houston. John Mufarrige listed the same residential address in Spring, Texas on his CAJ Auto Finance certificate of ownership as Christopher G. Mufarrige did for his certificate of ownership for CNJ Auto Finance.

CAJ Auto Finance’s activity did not end well. It closed in june 2016, but in April of that year, the Texas Office of Consumer Credit Commissioner (OCCC) issued a cease and desist order against the company for having “financed the sale of its vehicles without a license” for several years. The CAJ had explained to the OCCC that it was no longer active on two occasions, in December 2015 and January 2016, but the OCCC insisted that there were “reasons to believe that it always collects on existing accounts ”.

During the Trump administration, there have been numerous instances of appointees who previously worked for industries they now claim to regulate. Christopher G. Mufarrige’s situation seems to push these conflicts of interest to the extreme. Among other duties, he worked on predatory loan signing rules, having spent several years operating a business whose model is seen by many as an example of predatory lending.

“The payday rule-making process has really been corrupted from the ground up, leaving millions of Americans vulnerable to payday loan debt,” said Derek Martin of Allied Progress. He urged Congress to take bipartite legislation presented to Congress cap interest rates on consumer loans at an annual rate of return of 36%.

UPDATE: A previous version of this article listed Mufarrige as a “political appointee”. It has a Washington-specific definition of someone appointed by the White House or an agency head. It is not known who specifically brought Mufarrige to the CFPB, but he did not seek confirmation from the Senate as some political candidates do. He was specifically a “lawyer-adviser”, as the article indicates, reporting to other persons appointed to the CFPB. References to “political appointee” have been removed to avoid confusion.

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