As the Consumer Financial Protection Bureau moved Thursday to impose tighter restrictions on the payday lending industry, one question still looms large at the Obama-era agency: whether Director Richard Cordray will leave before the end of his term next year.
For consumer and industry advocates, the CFPB’s issuance of a payday lending rule was a long-awaited moment. It was seen as one last hill for the CFPB before Cordray, as many anticipate, will leave the agency before next July. The former Ohio attorney general is rumored to be interested in running for governor in the Buckeye State.
In recent months, Cordray has traveled to Ohio not only for his regular weekend returns home to Columbus but also for trips to Cincinnati and Cleveland, where he has extolled the CFPB’s work under his watch. The speeches have only served to fuel speculation that he’s about to step into the political ring.
Cordray’s inevitable departure will give President Donald Trump an opportunity to name a new leader for the agency at a time when the constitutionality of its independent, single-director structure is under attack in Congress and the courts. And just last week, a new major lawsuit was filed over the agency’s push to curtail mandatory arbitration in financial services contracts.
A federal appeals court in Washington is expected to issue a decision on that question this fall. On Capitol Hill, the Republican chairman of the House Financial Services Committee has proposed making the CFPB’s director fireable by the president rather than protected by a tougher “for cause” removal standard. That lawmaker, U.S. Rep. Jeb Hensarling, has voiced frustration with the looming question of what he described as Cordray’s “personal political ambitions.”
Cordray offered no insights into any personal political ambitions during his prepared remarks Thursday, in which he framed the CFPB’s payday lending rule as an effort to prevent consumers from falling into “debt traps.” The rule requires the nearly $40 billion industry to assess upfront whether consumers are able to repay their loans. Also, it aims to prevent repeated rollovers of loans, in which consumers take out new loans to repay older ones—a practice that can lead to spiraling fees.
“This cycle of piling on new debt to pay back old debt can turn a single unaffordable loan into a long-term debt trap,” Cordray said. “It is a bit like getting into a taxi for a ride across town, then finding yourself stuck in a ruinously costly cross-country journey with no exit ramps.”
Cordray did not take questions Thursday.
A CFPB attorney, Brian Shearer, said the rules would “set a floor” of protections in the 35 states that allow payday lending. In 15 states and the District of Columbia, caps on interest rates have effectively illegalized payday lending. Annual percentage rates for payday loans, which are typically for small-dollar amounts to be repaid within two-to-four weeks, often exceed 300 percent.
Financial industry groups were quick to attack the CFPB’s rule Thursday.
“The CFPB whiffed at an opportunity to provide assistance to the millions of Americans experiencing financial hardship,” said Richard Hunt, president and chief executive of the Consumer Bankers Association. “It is hard to believe just days after the CFPB reported more than four in ten Americans were struggling to pay monthly bills—often because of unexpected or emergency expenses—the bureau would drive Americans to pawnshops, offshore lenders, high-cost installment lenders and fly-by-night entities.”
The rule is set to take effect 21 months after its publication in the Federal Register. But it may first have to survive a legal and political gauntlet similar to one Republicans and the financial industry have set up for another rule, finalized in July, barring mandatory arbitration clauses that prevent consumers from banding together to file class action lawsuits.
The U.S. House, wielding a legislative tool known as the Congressional Review Act, voted in July to undo the rule. Facing an early November deadline, Senate Republicans have been pushing to follow suit but have not yet held a vote. Consumer groups fighting to save the rule have credited Equifax Inc.’s widely criticized response to its data breach—a now-withdrawn arbitration clause the company included in the terms of its credit monitoring service—for aiding their efforts to stave off a repeal vote.