Trump's Consumer Victory Officially Makes a Joke of Financial Reform

Nearly a decade after the crash, Trump makes a mockery of one of the few meaningful checks on the financial services industry

Mick Mulvaney, pictured in September, is Trump's new pick to head the Consumer Financial Protection Bureau. Credit: AP Photo/J. Scott Applewhite

Earlier this year, when researching a story on Donald Trump's executive appointments, I talked to current and former Hill staffers about Mick Mulvaney. The humorless debt truther from South Carolina was the man His Orangeness wanted to put in charge of the Office of Management and Budget, and the mention of Mulvaney's name generated a lot of adjectives.

"Dumb even by congressional standards," was one description. "A moron's moron."

Mulvaney was most famous for wanting to solve the national debt by deploying his sweeping ignorance of global economics as budget policy. Putting him in charge of the OMB was therefore like putting the Baader-Meinhof gang in charge of Lufthansa.

Like the rapturist preachers who spend their Sundays rooting for the end of the world, Mulvaney believes in a paradise that apparently rests somewhere just beyond the smoldering catastrophe that would follow a default on the national debt.

"I have yet to meet someone who can articulate the negative consequences [of defaulting]," he said during the debt-ceiling debate in 2010.

Congress is home to a lot of third-rate lawyers and between-jobs bowling buddies of regional rich folk who got pushed into public service almost by default.

Even in this crowd, Mulvaney has always been thought of by his peers as overmatched. When Trump made him OMB chief, the move was widely interpreted on the Hill as a Bannonite sabotage ploy, a short-cut to crushing government from within.

Now this same policy cooler is going to be put in permanent charge of the Consumer Financial Protection Bureau. This, after a Trump-appointed judge denied the request for an emergency restraining order against his appointment sought by deputy CFPB Director Leandra English.

Donald Trump, for one, is happy!

Mulvaney is a ghoulish pick for the CFPB post for a variety of reasons, the worst probably being that he appears to be an enthusiastic supporter of the payday lending industry. Payday lenders are the exact reason you need an agency like the CFPB.

They are pure human scum. Even by the rock-bottom standards of the American service industry, the payday-loan profit model is indefensibly exploitative. Your average flasher or school-zone meth dealer wouldn't be caught hanging out with a payday lender.

The payday loan business depended for ages upon the absence of any requirement that such lenders investigate the borrower's ability to repay. The typical payday operation set up shop in low-income, impoverished areas, forking out small cash loans, ostensibly against their destitute customers' next salary checks.

While federal bank examiners practically live in bigger banks, ruthlessly examining the viability of the bank's portfolio of loans, payday lenders have traditionally not had to run so much as a credit check on borrowers.

There were new rules coming – from the old head of the CFPB – that that would have forced payday lenders to run credit checks. It took the CFPB five years of research to come up with the new system. But who knows what will happen to that effort now.

Incidentally, the reason payday lenders didn't want to have to check on borrowers' repayment ability is that that information was irrelevant to their business model. These outfits didn't really want the small profits that came when the customer actually repaid the "payday" loan on time.

The real money was earned when borrowers got stuck rolling the loans over once, then twice, then over and over in an endless loop of killer fees. Once borrowers fall into that particular blender, they can find themselves paying far more interest than principal, hit with rates as high as 350 percent.

In a civilized country such "debt traps" would be illegal, but in America they're barely even disreputable. Why, the new head of the Consumer Financial Protection Bureau, Mulvaney, can accept $26,000 in donations from such people in just the 2016 election cycle alone – and not even feel embarrassed about it! And when talking to the previous CFPB chief in a House hearing about payday lenders, Mulvaney in 2014 could offer this opinion without shame:

"I share your understanding that small-dollar lending serves an important function for many borrowers, especially those who may not utilize traditional banking services, and hope the Bureau will work to ensure the continued viability and availability of these products," Mulvaney said.

The dark irony of Mulvaney being put in charge of the CFPB by, of all people, Donald Trump, is that it shows how totally we've bullseyed the worst-case scenario that could have been imagined, when the country was considering a policy response to the financial disaster of 2008.

The formation of the CFPB was one of the key features of the Dodd-Frank Act, crafted in the wake of that crash. The reform was designed at a time when taxpayers had just shelled out a fortune to rescue the economy from larger-scale versions of payday-style financial predation.

Many subprime loans were no-money-down pipe dreams pushed on similar populations of economically vulnerable people, particularly minorities and the elderly. As with payday loans, subprime borrowers were often sucked into years of spiraling penalty payments by unscrupulous lenders.

A government agency dedicated to spotting and preventing such snake-oil consumer scams might have been able to prevent the 2008 crash. That none existed was amazing to begin with. Government officials came to similar conclusions after the 1929 crash, when they created agencies like the SEC to help protect until-then unprotected investors.

That was the thinking behind the founding of the CFPB. Most of the financial regulatory system until then had been focused on larger economic questions like soundness and liquidity, and there was virtually no one on the beat to protect individual consumers.

Still, it took a fierce fight during the Dodd-Frank negotiations just to get the CFPB at all, as Republicans were fiercely opposed to its creation and especially anxious to prevent Elizabeth Warren from heading it.

Now the agency is being taken over by a politician subsidized by predatory lenders, and nominated by as infamous a scam artist as has ever graced the halls of the White House. Giving the founder of Trump University and projects like Trump SoHo the power to nominate the head of the nation's leading consumer protection agency is a punch line stupid enough to make even Dennis Miller groan.

As Trump always finds a way to up the media ante, the next step is surely something like putting someone like Angelo Mozilo in charge of HUD. Whatever the worst move you can imagine might be, it's coming. What a joke this country has become.