Consumer bureau’s acting director asks for zero 2Q funding
WASHINGTON — In his first quarterly funding request as acting director of the Consumer Financial Protection Bureau, Mick Mulvaney is asking for nothing, and the bureau is dropping a lawsuit against a group of payday lenders associated with an American Indian tribe in California.
“This letter is to inform you that for the Second Quarter of Fiscal Year 2018, the Bureau is requesting $0,” he wrote Wednesday to Janet Yellen, chairman of the Federal Reserve, which provides the watchdog agency’s funding.
Mulvaney said that the bureau had enough money on hand to cover its anticipated $145 million in expenses for the quarter, which began Jan. 1, and that he plans to slash the bureau’s reserve fund.
Mulvaney, who also serves as White House budget director, is an outspoken critic of the bureau who was made acting director in November — a move by President Trump that is being challenged in court. In a 2014 interview, Mulvaney called the bureau a “joke … in a sad, sick kind of way” and said that he “would like to get rid of it.”
Mulvaney’s request for no funding came as Mulvaney announced the first step toward an overhaul of the agency: a review of its entire operation. Consumer advocates criticized that move, announced Wednesday, and on Thursday they blasted the funding request.
“There can be no clearer signal of Mick Mulvaney’s intent to defang and dismantle the Consumer Financial Protection Bureau than his request of zero dollars in funding and his decision to instead drain the bureau’s reserve set up to provide funding during emergencies,” said Karl Frisch, executive director of Allied Progress, a consumer watchdog group.
Because any Fed surplus is returned to the U.S. Treasury each year, Mulvaney said, his funding decision will help reduce the federal budget deficit. The Congressional Budget Office has estimated that the 2018 budget deficit will be $581 billion.
“While this approximately $145 million may not make much of a dent in the deficit, the men and women of the bureau are proud to do their part to be responsible stewards of taxpayer dollars,” Mulvaney wrote.
He said he decided not to follow the practice of his predecessor, Richard Cordray, in maintaining a reserve fund “to address possible financial contingencies.”
Mulvaney questioned whether the bureau had the legal authority to establish a reserve fund. And he added that he saw “no practical reason” for a large reserve given that the Fed has never denied a bureau request for funding since it was created in 2010.
Mulvaney intends to “spend down the reserve fund until it is of a much smaller size,” he wrote.
When the 2017 fiscal year ended Sept. 30, the bureau’s fund had an unobligated balance of $177.1 million, according to its annual financial report. On Oct. 12, Cordray requested $217.1 million for the first quarter of 2018. The Fed transferred the money six days later.
The bureau was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to oversee credit cards, mortgages and other financial products.
The agency has provided consumers about $12 billion in refunds and debt relief from financial institutions since opening in 2011. It also played a key role in penalizing Wells Fargo & Co. for its creation of unauthorized accounts.
But Republicans and many financial firms have said the bureau has been too aggressive in enforcing consumer protection laws and drafting new regulations to avoid future abuses.
Mulvaney said on his first day on the job in November that he told bureau employees, “Look, I’m not here to shut the place down because the law doesn’t allow me to do that. That being said, we’re going to run it differently than the previous administration.”
PAYDAY LENDING
In the payday lending case, the agency had accused the lenders of deceiving consumers and failing to disclose the true cost of the loans, which carried interest rates as high as 950 percent a year. The agency asked for the case in federal court in Kansas to be dismissed in a court filing on Thursday, giving no details about its reasoning.
The case, which was filed last year, shook the industry of online payday lenders associated with American Indian tribes. It’s a surprisingly big business that grew out of a loophole. Because payday loans are largely regulated at the state level, tribes can argue that the rules don’t apply to them. Regulators and consumer advocates say the loans, which are intended to be repaid quickly, can trap borrowers in cycles of costly debt that are difficult to escape.
“It’s an earth-shattering change,” said Christopher Peterson, a former consumer bureau employee who left the agency in 2016 and is a law professor at the University of Utah. “This is signaling that the [bureau] is going to stand down on the online payday lenders who refuse to comply with state interest-rate caps.”
Earlier this month, a federal judge in Manhattan sentenced payday loan mogul Scott Tucker to 17 years in prison. Jurors found Tucker and his lawyer guilty of collecting unlawful debts, using misleading contracts and falsely stating that the businesses were owned and operated by the tribes.
The consumer bureau’s lawsuit had targeted four companies owned by the Habematolel Pomo of Upper Lake tribe in Lake County, Calif. Messages left for the tribe and its lawyers weren’t immediately returned, and John Czwartacki, Mulvaney’s communications director at the White House budget office, didn’t return an email.
The rule was likely to have upended the industry. Payday lenders argue that the high fees and interest rates they charge are necessary because borrowers have a high risk of not repaying the loans, and that they serve millions of customers who often are unable to get credit elsewhere.
Information for this article was contributed by the Los Angeles Times and Bloomberg News.