The U.S. Consumer Financial Protection Bureau is investigating payday lenders again, focusing in particular on their practice of connecting wage-earning Americans in need of cash with loan opportunities.
The CFPB posted a document on its website noting that it is looking into whether such firms "have engaged or are engaging in unlawful acts or practices in connection with the marketing, selling or connection of payday loans." It received a submission from MoneyMutual, a company that connects borrowers with lenders and noted for its television ads featuring Montel Williams, after a requesting information on its practices. It was not clear, however, whether the bureau issued a civil investigative demand for documents as part of its ongoing probe into third-party lending, Reuters reported. Spokespersons from MoneyMutal and its parent digital marketing company Selling Source, did not have immediate public comments to offer.
It is no secret, though, that the bureau has been keeping close tabs on the payday loan industry, one that revolves around borrowers who take out smaller loans with contingencies – usually in the form of a debt that must be repaid when they receive their next paycheck from an employer or other income source. The loans are often dangerous, consumer advocates argue, because of higher interest rates that only send low-earning borrowers spiraling into deeper chasms of debt. Online lenders have been a particular focus of the investigation, based on the suspicion that they frequently circumvent state laws in issuing payday loans.
Predatory practices?
Regulators monitoring the financial industry have long sought to take a bite out of the business by targeting the firms that collect borrowers' personal information online, then pass that information along to the lenders with whom the consumers are ultimately connected and indebted to.
MoneyMutual's website touts the company as the "industry leader" in the practice of connecting borrowers with small loan amounts, claiming that more than 1 million Americans have employed its services. No figures are offered, however, regarding the specifics of those borrowers' debt or their ability to repay. Last month, it and 15 other companies in the industry received subpoenas from Benjamin Lawsky, the head of New York's Department of Financial Services.
The bureau, meanwhile, is considering writing new rules for the payday loan industry, not unlike in the manner it recently did for mortgage lending servicers. As part of its ongoing dedication to protecting American consumers from dangerous financial products and predatory lending practices, the bureau enacted the Qualified Mortgage and Ability-to-Repay rules this January, which essentially require lenders to adhere to sound risk assessment practices when approving prospective buyers for home loans.
Part of the impetus for updating the rules for payday lenders was a 2013 paper the bureau published on consumers' perceived "sustained reliance" on such small-dollar offers. Created in 2010 in conjunction with the Dodd-Frank Wall Street Reform and Protection Act, the CFPB took its first enforcement action against a payday lender, Cash America International, in November 2013.
Changes to the regulator's structure
Meanwhile, the bureau, which has been under steady fire from members of the House who have drafted regulation that threatens to shake up its entire structure, announced the creation of three new senior leadership positions with its organization. The agency appointed new assistant directors for its Office of Research, the Office of Financial Empowerment and the Office of Installment and Liquidity Lending Markets, according to a Reverse Mortgage Daily report.
Its appointees included Christopher Carroll, a professor of economics and a member of the Board of Directors of the National Bureau of Economic Research, who was named Assistant Director of Financial Empowerment within the bureau's Consumer Education and Engagement division. Daniel Dodd-Ramirez was named Assistant Director of Financial Empowerment in the same division after 10 years of serving as the executive director of Step Up Savannah, Inc., in Savannah, Ga., and education project director and a community organizer for People Acting for Community Together (PACT) in Miami. The third appointee was Jeffrey Langer, who was named Assistant Director of Installment and Liquidity Lending Markets in the Research, Markets and Regulations division. Langer previously served as senior counsel for Macy's, Inc., and was a partner in several law firms.
Much of the criticism of the regulatory body has centered on its seemingly autonomous, singular leadership. Director Richard Cordray has been accused of acting with impunity, a charge that triggers the House's proposal to replace his position with four separate leadership posts, to be filled with candidates hand-picked by Congress.
"I'm pleased that these incredibly talented individuals have joined the bureau," Cordray said in a statement. "All three offices play an essential role in making sure that consumers are being treated fairly. These experts will lead the teams that help us monitor the marketplace and provide tangible benefit to consumers."