The Consumer Financial Protection Bureau should focus on financial literacy – empowering consumers to help themselves by choosing the best products and services to meet their needs, said the new director of the CFPB.
The government can’t be everywhere, said Kathy Kraninger, in a talk she gave Wednesday prior to a panel discussion sponsored by the Bipartisan Policy Center, a Washington, D.C., think tank.
Kraninger said the CFPB would also use other tools available to it – regulations, supervision, and enforcement. However, under her predecessor, Mick Mulvaney, the acting director appointed to head the CFPB by President Trump, enforcement action by the agency dropped dramatically.
In fact, when Mulvaney was a congressman from South Carolina, he proposed that the CFPB should be abolished. When he took over the leadership of the agency, he set about crippling it.
One of the regulations Mulvaney wanted to weaken was payday lending. While payday lending is regulated by most states, regulations at the national level are lacking.
The CFPB, a new agency created after the Great Recession to protect consumers in their financial dealings, spent five years gathering information on payday loans. Low-income consumers often fall into the payday loan “debt trap.” They borrow $300 to pay their rent or an electric bill but find that they need to take out another loan to pay off the first one. Interest rates are often 400 percent or higher, and fees are charged.
The CFPB’s regulation would have eliminated debt traps. It would have required lenders to determine whether borrowers could afford to pay back a loan before making the loan.
The payday loan industry sued the CFPB to delay the payday regulation, and in a surprising move, Mulvaney directed his agency to join them. Although a judge refused to stop the rule from being adopted in August of 2019, Kraninger, in her first policy move as the agency’s director, gutted the tougher requirements of the proposed payday regulation.
The payday loan industry strongly opposed the CFPB regulation because it makes most of its profits from those borrowers caught in dept traps, according to the New York Times article, “Mick Mulvaney’s Master Class in Destroying a Bureaucracy From Within.”
While Kraninger said in her speech, recorded in the video above, she’s going to use all the tools available to the CFPB, she’s already shown she’ll be continuing Mulvaney’s policies
It’s disappointing that the CFPB, created after the financial crisis of 2018 to help consumers, is becoming a financial literacy program instead of an agency that goes after wrongdoers.