--:-- Sean Rameswaram: So Valentine's Day falls on a Thursday. You got a big date, but it's going on the credit card. Tomorrow's Friday, the 15th, and you're finally getting paid. You're going to make it. But then your car breaks down on the way home. You have to call a tow truck.
--:-- [Sound effects: Car breaking down]
--:-- Sean Rameswaram: Tow truck driver's kind of shady. Says he only takes cash. And he wants $300 up front. To get your car to the shop. You don't have enough left in your account. Your girlfriend cancels dinner when you ask her for the money. So you head to that payday lender On the corner.
--:-- [Sound effects: Cash register ringing]
--:-- Sean Rameswaram: The lady behind the counter says She can give you $300 on the spot. It's a loan but she doesn't need your credit score. She doesn't need your credit card. She just sort of trusts you.
--:-- Jesse Isinger: This is all a myth. I'm Jesse Isinger, the author of The Chicken Shit Club. It's a book about white collar crime. The real money here is in having the borrowers not pay them back. These borrowers are not typically able to pay off the loan when the next check comes in. And so what they do is they roll over these loans over and over and over again throughout the year.
--:-- Sean Rameswaram: And the payday lenders are only too willing to lend to them and tack on fees. So as a condition of the loan, you haven't given them the tax returns, you haven't given them all your history of employment to show that you're a good credit risk, but you have given them something that they really want, which is access to your bank account.
--:-- Jesse Isinger: Then they can garnish your wages, take away your wages, and they can take fees off of it. So it becomes a cascading trap for a lot of these borrowers who get into short-term straits and then can't get out of it.
--:-- Sean Rameswaram: The government created something to protect people from these kinds of predatory 400% interest rate loans. You may have heard of it. It's called the Consumer Financial Protection Bureau. They decided to create a rule to try to limit the activities of payday lenders.
--:-- Jesse Isinger: And unfortunately, they didn't finalize it in time for when the Trump administration came in. And the Trump administration was able to re-review the rules. The bureau just announced it wants to roll back its rules on payday lending.
--:-- Sean Rameswaram: The rules require lenders to check the borrower's ability to repay certain high-interest loans, which are often due within 30 days. The Trump administration says it wants to protect consumers' access to credit. But critics say this type of lending can be predatory and force struggling consumers into an endless cycle of loans, high fees and debt.
--:-- Jesse Isinger: The CFPB hasn't been doing so hot under President Donald Trump. They have managed to gut the CFPB in a highly effective way. And the payday lending rule is one stark example of this.
--:-- Sean Rameswaram: Remind me how exactly this Consumer Financial Protection Bureau came to be.
--:-- Jesse Isinger: So you have to cast your mind back to the financial crisis of 2008 where global capital markets collapse. The government has to save the financial system. They bail out the banks. And then there are two big revelations from this. One is that there are huge areas of the financial system that are really inadequately regulated.
--:-- Jesse Isinger: And then the second thing is they realize, well, we also don't really have the right regulators. They're overlapping responsibilities and things fall through the cracks. And the one big thing that fell through the cracks was protecting consumers.
--:-- Sean Rameswaram: No regulator, not the Securities and Exchange Commission or the Federal Reserve or the FDIC, and we have all these bank and financial regulators out there, but nobody had their eye on the consumer. And whether consumers were getting predatory products, whether they were being exploited, whether they were being cheated.
--:-- Jesse Isinger: And the chief architect of this and the first visionary was Elizabeth Warren. Who? You may have heard of her. I'm Elizabeth Warren. She's a professor up in the Boston area.
--:-- Sean Rameswaram: Oh, okay. Regional success. Exactly. Thank you. She was a law professor at Harvard and she had studied consumer bankruptcies And she had a vision and she laid out a vision before the financial crisis to have a regulator looking out for consumers
--:-- Jesse Isinger: And once the financial crisis hit, when the Obama administration and the Democratic-controlled Congress was looking to reform the regulatory architecture of financial regulation in America, Warren sold Barney Frank on the idea that we should create something to protect consumers, where there was a bureau that just looked out for the customers of these financial institutions.
--:-- Sean Rameswaram: This isn't usually how our politics works, right? That some Harvard professor says, I've got an idea, and somehow she makes it happen?
--:-- Jesse Isinger: No, that's absolutely true. And I think it was because Warren was so charismatic. She was elevated to the position of congressional oversight panel that oversaw the TARP, which was the bailout program for the banks.
--:-- Sean Rameswaram: And in that position, she really rose to prominence as a kind of simple and clear defender of average Americans who was unafraid of big, rapacious bankers.
--:-- Jesse Isinger: They still want to be the ones who are writing the rules, the big financial institutions. They want the status quo. They don't want changes that would cause them to have to alter their business plan.
--:-- Sean Rameswaram: They like a business plan in which they keep all the profits and the taxpayers pick up all the losses.
--:-- Jesse Isinger: And so she grilled bankers and grilled Tim Geithner, the Treasury secretary who couldn't stand her, over the Obama's failure to more aggressively help homeowners to oversee the banks, that their bailout was overly generous to the banks.
--:-- Sean Rameswaram: So she was elevated and became a superstar. And how exactly does the CFPB that gets realized, the Consumer Financial Protection Bureau, differ from Elizabeth Warren's initial vision?
--:-- Jesse Isinger: Well, her initial vision was Elizabeth Warren, CFPB director. The banks succeeded in blocking her from being the first head of the agency.
--:-- Sean Rameswaram: How does that happen? Well, I think there were a lot of open ears to bank concerns within the Obama administration. Tim Geithner among them but not only him.
--:-- Jesse Isinger: And the big democratic establishment was certainly quite friendly to Wall Street before the financial crisis and continued afterwards.
--:-- Sean Rameswaram: So the Democratic Party is a big tent and it just happened to be that the banks occupied more space in the Obama administration than the Warren acolytes.
--:-- Jesse Isinger: So they believed in the CFPB but she was too controversial and Obama didn't want to pick a fight about that and appointed Richard Cordray who was a Warren acolyte and didn't have the charisma, didn't have the superstar power.
--:-- Sean Rameswaram: But I would put it up there as one of the biggest Obama administration successes.
--:-- Jesse Isinger: How did they make the country work better for consumers? Well, they policed payday lenders. They brought a big case at the very end of Cordray's term against Navient, the biggest student loan servicer in the country.
--:-- Sean Rameswaram: People may know it as its previous name, Sally May, accusing the Navient of steering students into loans that were more expensive than they needed to be.
--:-- Jesse Isinger: The lawsuit just filed against the country's largest student loan servicer could give some much-needed relief to borrowers.
--:-- Sean Rameswaram: The government claims Navient misled students trying to pay back those loans.
--:-- Jesse Isinger: They were trying to protect military families. Troops are often young, away from home, and easy prey for unscrupulous lenders and shady financial products.
--:-- Sean Rameswaram: That's why he helped to create an office to protect service members at the Consumer Protection Bureau.
--:-- Jesse Isinger: So there was a lot of preventive measures, there were a lot of education, and then there was significant enforcement.
--:-- Sean Rameswaram: So almost a decade later, how's that going?
--:-- Jesse Isinger: So as I say, this has been one of the Trump administration's great successes. They have brought the CFPB to its knees. They have almost gutted the entirety of the agency's work.
--:-- Sean Rameswaram: It's almost like it's a ghost town. You see very few, if any, enforcement actions out of the agency anymore, and they're rolling back rules.
--:-- Jesse Isinger: This is an agency on life support.
--:-- Sean Rameswaram: Coming up on today, explain Mick Mulvaney CFPB or should I say Mick Mulvaney BCFP? It's a long story. It's next.
--:-- Sean Rameswaram: You know, there are lots of tech podcasts out there, but very few of them have the kind of access that Kara Swisher does to the people making the big, important decisions in Silicon Valley.
--:-- Jesse Isinger: Like Jack Dorsey from Twitter, who Kara had a one-on-one with on Twitter just this week.
--:-- Sean Rameswaram: Or Tim Cook from Apple, who Kara also sat down with recently.
--:-- Jesse Isinger: Or Mark Zuckerberg, maybe you've heard of him, from Facebook, who Kara also, also sat down with recently.
--:-- Sean Rameswaram: Kara talks about all of these conversations and much more on her podcast Pivot with her co-host Scott Galloway.
--:-- Jesse Isinger: If you subscribe right now, you get an episode tomorrow in which she'll go over what she learned from talking to Jack from Twitter.
--:-- Sean Rameswaram: And she also talks about the likelihood of Congress regulating tech this year and her beef with Tucker Carlson.
--:-- Jesse Isinger: Pivot with Kara Swisher and Scott Galloway. Get on that train.
--:-- Sean Rameswaram: Jesse, how does deregulation at CFPB go? Is it like jumping into a pool or is it like easing into a hot tub, a slower process?
--:-- Jesse Isinger: No, it was a slower process because Cordray's term did not end right away.
--:-- Sean Rameswaram: And they couldn't fire him because he was the head of an independent agency.
--:-- Jesse Isinger: And the CFPB intelligently had been designed to be insulated from political machinations and the White House.
--:-- Sean Rameswaram: So it took a little while for the Trump administration to get Cordray out.
--:-- Jesse Isinger: They never do fire him, but he voluntarily leaves to run for governor of Ohio, a race in which he lost.
--:-- Sean Rameswaram: And then Mick Mulvaney comes in.
--:-- Jesse Isinger: He's the OMB director, Office of Management Budget director.
--:-- Sean Rameswaram: But he decides, well, you know, I can dismantle the CFPB in my downtime on the weekends, more or less.
--:-- Jesse Isinger: And he comes in and he gets to work right away. He's basically like the troll in chief of the CFPB.
--:-- Sean Rameswaram: So he's doing a bunch of serious-minded rollbacks of regulation.
--:-- Jesse Isinger: And then he's also monkey wrenching and just trying to basically provoke liberal tears.
--:-- Sean Rameswaram: And he really succeeds. I mean, he does certain things like he decides, I'm going to change the name of the CFPB, the Consumer Financial Protection Bureau, to the BCFP, the Bureau of Consumer Financial Protection.
--:-- Jesse Isinger: I mean, it's completely pointless. Technically, what he was saying was in the language of the law, it doesn't say CFPB. It actually literally says Congress shall create at Bureau of Consumer Financial Protection.
--:-- Sean Rameswaram: So he says, we must adhere to the letter of the law, and therefore we're going to change the name.
--:-- Jesse Isinger: It was one of these things that actually was going to cost a huge amount of money because banks, in adhering to the regulations and sending data to the CFPB, had letterhead.
--:-- Sean Rameswaram: They had all sorts of stuff that they were going to have to reprogram, and it was going to cost a huge amount of money.
--:-- Jesse Isinger: So it was just a stalling thing.
--:-- Sean Rameswaram: I'll give you another example. So he said, I don't think that we have – our systems are secure enough.
--:-- Jesse Isinger: And I worry that when we've subpoenaed information from financial institutions to find out what their activities are, I'm worried that that's not secure and that could be leaked.
--:-- Sean Rameswaram: So we're going to halt that. We're going to freeze that.
--:-- Jesse Isinger: And what the result of that was is that investigators, lawyers at the CFPB who had subpoenaed information were not allowed to access that information on their own computers for weeks.
--:-- Sean Rameswaram: So you just brought the business of the CFPB to a halt for this supposed cybersecurity investigation of how safe the material was.
--:-- Jesse Isinger: He would send out these missives, kind of Rumsfeldian missives to all hands emails.
--:-- Sean Rameswaram: And one of them, he said, you have to remember that the CFPB works for all Americans.
--:-- Jesse Isinger: And then he explicitly wrote, what I mean is Americans who take out credit card loans and Americans who issue credit cards.
--:-- Sean Rameswaram: Americans who take out loans and Americans who issue loans. The lenders, too.
--:-- Jesse Isinger: He sort of literally said, we working for the credit card companies and the banks.
--:-- Sean Rameswaram: Under Mick Mulvaney tenure does the CFPB lose a lot of staff?
--:-- Jesse Isinger: Yes. So staff is way down.
--:-- Sean Rameswaram: And then you can see the results. The actual enforcement actions are down about 75 percent.
--:-- Jesse Isinger: And the fines are much smaller. So even when they do take an enforcement action. These are tiny fines, slaps on the wrist.
--:-- Sean Rameswaram: They dropped a bunch of lawsuits.
--:-- Jesse Isinger: There was an office of fair lending that looked at discriminatory practices of loans, an incredibly important mission for the CFPB.
--:-- Sean Rameswaram: And he took it out of one office and put it under the director, which is seen as a way of gutting the mission of that.
--:-- Jesse Isinger: Mulvaney's not in charge anymore, right?
--:-- Sean Rameswaram: No, Mulvaney's not in charge anymore.
--:-- Jesse Isinger: He went back to being the OMB director and Trump named this kind of faceless bureaucrat Kathleen Craninger as the head of the agency.
--:-- Sean Rameswaram: Craninger incidentally sort of looked like she might be a breath of fresh air.
--:-- Jesse Isinger: She restored the original name to the place, which was quite a savvy political move because nobody thought it was a good idea and it was a very easy way to score points.
--:-- Sean Rameswaram: And she had the appearance of being a kind of kinder and gentler administrator.
--:-- Jesse Isinger: And then in her first big action, she reversed this payday lending rule.
--:-- Sean Rameswaram: And they basically roll back two big provisions. One was the rule said, you have to underwrite these borrowers.
--:-- Jesse Isinger: What that means is you have to know whether the borrowers can repay. You can't give money to people who can't repay because that's just predatory.
--:-- Sean Rameswaram: So you need to undertake some effort to understand what their financial situation is and whether they have the wherewithal or the future income to pay this loan back.
--:-- Jesse Isinger: The second thing is they tried to limit these consecutive loans.
--:-- Sean Rameswaram: The payday lenders make their money by having these poor borrowers roll over their loans one after another after another and tacking on fees after each one until they make their money back and more so many times over.
--:-- Jesse Isinger: And so what the payday lending rule was going to do is limit their ability to roll those over or two.
--:-- Sean Rameswaram: And the Trump administration, Kraninger, has rolled back those two things and said you don't have to underwrite and there's no limit on consecutive loans.
--:-- Jesse Isinger: How much of the original mandate of the organization and what was set up under the Obama administration remains?
--:-- Sean Rameswaram: Does the organization have any teeth left?
--:-- Jesse Isinger: Well, regulation is about the people who are in the regulator. Personnel matters.
--:-- Sean Rameswaram: And it's something that democratic administrations have not fully understood this.
--:-- Jesse Isinger: I think they thought the rules kind of take care of themselves.
--:-- Sean Rameswaram: And the regulators run on the power of civil servants.
--:-- Jesse Isinger: And that's not really true.
--:-- Sean Rameswaram: It really matters who the heads of these agencies are.
--:-- Jesse Isinger: What does this particular hollowing out mean for people?
--:-- Sean Rameswaram: When will they see it and how might it look?
--:-- Jesse Isinger: Well, I think it's going to mean that life is meaner and tougher and more dangerous and people will be more vulnerable in the coming years.
--:-- Sean Rameswaram: You know, I don't know if we could draw a line to today, if you went on the street and found people who are barely getting by, whether that you can blame the Trump administration for that or the CFPB for that, that might be a little bit unfair.
--:-- Jesse Isinger: But in a few years, people are going to be back to being in hock to payday lenders all across the country.
--:-- Sean Rameswaram: And that will be because of the Trump administration.
--:-- Jesse Isinger: And military families will run into problems with loans and be exploited with bad insurance products and things like that and that will be because of the Trump administration.
--:-- Sean Rameswaram: This is going to have a real effect on real people at some point in the near future.
--:-- Sean Rameswaram: Jesse Isinger is a senior reporter at ProPublica.
--:-- Sean Rameswaram: We reached out to the Consumer Financial Protection Bureau for comment, but no one wrote back.
--:-- Sean Rameswaram: I'm Sean Rameswaram for him. This is Today Explained.
