Says Financially-Vulnerable Americans will be Hurt; Demands Investigation into Role of Agency’s Political Appointees in “Corrupt and Flawed” Rulemaking Process that led to Stripping of Protections

WASHINGTON, D.C. [05/20/20] - U.S. Sen. Tina Smith (D-Minn) has blasted the nation’s top consumer protection official for helping shepherd a new rule that will gut payday lending protections needed by financially-vulnerable Americans, saying the “corrupt” process used to develop the rule was badly tainted by the work of political appointees who manipulated economic data to get rid of current consumer protections.

Sen. Smith, in a letter to Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger this week, called for an immediate halt to the current rulemaking process, and for an investigation into the serious improprieties uncovered about the process. 

The letter, sent with Senate Banking Committee member Sherrod Brown (D-Ohio), also criticized Kraninger for not addressing specific allegations about the process that the Senators raised earlier this month.

“In light of these disturbing revelations, we asked you to halt work on the current Payday Rule and restart the rulemaking process” The Senators wrote. “Additionally, members of Congress from both the Senate and the House of Representatives have asked the CFPB’s Inspector General to commence a formal investigation into the CFPB’s rulemaking process for the new Payday Rule and whether the CFPB misled Congress about that process.”

Sen. Smith says that the CFPB must back a strong payday lending rule that protects consumers because bad behavior from payday lenders puts Minnesota’s most vulnerable residents into endless cycles of debt.  Smith also believes the CFPB’s Inspector General should launch an investigation of the agency’s rulemaking process. 

Payday lenders offer short-terms loans to consumers with excessive fees and interest rates as high as 300% or more.  Researchers and consumer advocates have long criticized payday lenders for preying on struggling consumers and trapping them in cycles of debt that force consumers to take out one high interest loan after another, with little hope of repaying them.  In 2017, under the leadership of President Obama’s appointee, the CFPB finalized the first set of national rules regulating payday lenders.  Since then, President Trump’s nominees to the CFPB have bowed to special interest pressure and have worked extensively to repeal the key consumer protections enacted in 2017.  A final rule repealing most of the key protections enacted in 2017 is expected soon.

The Senators previously sent a letter to Director Kraninger following press reports that extensively detail improper interference and manipulation of the rulemaking process for the Payday Rule by CFPB political appointees.

You can read the letter here or below:

The Honorable Kathleen Kraninger

Director

Consumer Financial Protection CFPB

Dear Director Kraninger:

We write regarding your attempts to defend the corrupt, flawed rulemaking process and actions by the Administration’s political appointees concerning a new Consumer Financial Protection Bureau (CFPB) Payday Rule. We wrote you on May 4, 2020, about an internal memorandum by a senior CFPB career employee that describes persistent, repeated interference and attempts by CFPB political appointees to manipulate or misinterpret economic research for the payday rulemaking.[1] That memorandum provided specific details, identifying individuals, dates, and misconduct that appears to violate the Administrative Procedure Act’s requirements for agency rulemakings.[2]

In light of these disturbing revelations, we asked you to halt work on the current Payday Rule and restart the rulemaking process. Additionally, members of Congress from both the Senate and the House of Representatives have asked the CFPB’s Inspector General to commence a formal investigation into the CFPB’s rulemaking process for the new Payday Rule and whether the CFPB misled Congress about that process.[3] 

Your dismissive response to the serious, extensive, and well-documented charges in the memorandum is alarming.[4] You did not address any of the specific misconduct recounted in our May 4, 2020 letter, or the more extensive misconduct described in the memorandum. Instead, you attempted to recast this conduct as simply “views and ideas competing for consideration,” “informed debate and sometimes friction,” and “rigorous policy evaluation.”[5]

Your response provides a gross misrepresentation of the corrupting role of CFPB political appointees described in the memorandum. “[I]gnoring the majority of the available research, and handpicking studies that support a specific conclusion,” as described in the memorandum,[6] is not “ideas competing for consideration.” Political appointees pushing career staff to “ignore” research and analysis because a political appointee “doesn’t agree with them,” as described in the memorandum,[7] is not “informed debate.” And relying on study findings that are contradicted by the underlying data or studies written by industry-funded researchers, as described in the memorandum,[8] is not “rigorous policy evaluation.” None of this conduct should make you “proud.”

Your response suggests you condone the conduct of the political appointees who worked under you and during Mr. Mulvaney’s tenure as acting Director. It also strengthens the case that, from the outset, you and Mr. Mulvaney had predetermined that you would repeal the 2017 Payday Rule and its protections for consumers—and that to do so, you were willing to find evidence in support of your conclusion even if that meant ignoring any research, data, or legal analysis that did not support this outcome.

As you note in your letter, ultimately you will determine whether to proceed with the issuance of a final Payday Rule. We ask that you restart the rulemaking or, at a minimum, delay issuing a final Payday Rule until the allegations of political interference, manipulation of research, and other conduct that appears to violate the Administrative Procedures Act have been investigated by the CFPB’s Inspector General. Moving forward with this rule does not meet your so-called commitment to a “rigorous policy evaluation,” nor  could such a rule withstand judicial scrutiny.

Sincerely