This week, a government watchdog filed an ethics complaint alleging that a dozen members of Congress had received campaign donations from predatory payday lenders immediately before or just after taking action to protect their interests.
The donations, first flagged in a report released last week by Allied Progress, a progressive advocacy group, appear to cross the fuzzy line between routine fundraising and a quid pro quo arrangement—what non-lawyers would see as something approaching outright bribery.
Anne Weismann, executive director of the Campaign for Accountability, which filed the complaint, told The Nation, “These members of Congress are advancing the interests of what can only be called a reprehensible industry. Its business model is to trap people into this endless cycle of debt, and it’s hard to imagine how they could see this as being in the best interests of their constituents.”
Allied Progress staff were reviewing contribution data for lawmakers who had taken at least $25,000 from the industry since the CFPB was established in 2011, and they noticed a pattern. A dozen lawmakers received campaign contributions just days before, days after or, in several cases, both before and after sponsoring or co-sponsoring three key pieces of legislation that would have hobbled regulators’ ability to rein in the industry—or signing onto letters to Attorney General Eric Holder and Federal Deposit Insurance Commission Chairman Martin Ginsburg that The New York Times described as an attempt to “intimidate the Justice Department and federal regulators into abandoning an important strategy designed to protect” consumers from predatory lending.
“It would be one thing if we had only found one instance,” says Karl Frisch, the executive director of Allied Progress, “but when you see it with a dozen members of Congress, and it totals hundreds of thousands of dollars, then I don’t think that’s a coincidence.”
The Campaign for Accountability’s complaint calls for an investigation into whether these members violated House ethics rules or criminal laws against influence-peddling.
Payday lenders have been locked in a pitched battle with the Consumer Financial Protection Bureau (CFPB), the brainchild of Senator Elizabeth Warren, since its creation.
CFPB set its sites on payday lenders early on. Six months after it began operations, the fledgling agency’s first field hearings looked into the industry’s business practices, noting that for a typical payday loan, borrowers pay interest and fees that equal an Annual Percentage Rate “ranging from 391 percent to 521 percent.”
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In 2014, the CFPB reached a $10 million settlement against ACE Cash Express, one of the biggest payday lenders in the United States. In a statement, CFPB Director Richard Cordray said that ACE had “used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt. This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”
It was no exaggeration to say that a crushing cycle of debt was central to ACE Cash Express’s business model, as illustrated by this graphic from the company’s own training manual for new hires, which was obtained by the CFPB:
Payday lenders say they offer people who don’t have good credit quick cash when they need it, but the practices Cordray described are widespread throughout the industry. According to a 2014 study by the CFPB, four in five payday loans are either rolled over directly or followed by a new loan within two weeks. Half of all payday loans are issued within a sequence of 10 or more consecutive loans. With each rollover or new loan, borrowers typically rack up more fees.
For 33-year-old Wichita, Kansas, resident Eboni Maze, that cycle began with an auto title loan. (A study of title loan practices by the Pew Charitable Trusts found that “title loans are plagued by the same issues found in the payday loan market, particularly unnecessarily high prices and unaffordable payments that lead to extended indebtedness.”)
She and her husband were struggling to raise four kids through several periods of unemployment, and when they couldn’t keep up with their payments, their car was repossessed. So Maze pawned some of their possessions for $200 and then took out a $150 payday loan to help buy another car so she could get to work. She says she can’t recall how much the total payments on the loans added up to, but she soon found herself having trouble keeping up, and that’s when the threatening letters started arriving.
Two years later, and still entrapped in debt, Maze tells The Nation that she feels like she’s been stuck “in a black hole that you can never get out of.” She now warns others to “borrow money from friends or family before you get sucked up into that system. It’s a cold business.”
The CFPB was established in the wake of the 2008 financial crisis to protect people like Maze, but the industry and its defenders in Congress have fought hard to hobble the agency’s ability to do its job. Americans for Financial Reform reported that payday and title lenders and their trade associations reported over $15 million in lobbying and campaign cash during the 2013-2014 election cycle.
The complaint filed this week with the Office of Congressional Ethics may or may not lead to sanctions against what Allied Progress has dubbed “the Dirty Dozen.” That body can only make recommendations to the House Committee on Ethics, which has a less-than-sterling record policing its own.
But it certainly appears to be a perfect example of wealthy donors’ using their political clout to advance policies that redistribute wealth upward, from the pockets of the poor. MIT economist Daron Acemoglu, co-author of Why Nations Fail, argued that this represents “a general pattern throughout history.… When economic inequality increases, the people who have become economically more powerful will…monopolize political power, [and] start using that for changing the rules in their favor.”
The full complaint can be read at the Campaign for Accountability. The lawmakers it implicates—two Democrats and 10 Republicans (one of whom, Spencer Bachus (R-AL), is now retired)—are:
Rep. Stephen Fincher (R-TN)
Rep. Scott Garrett (R-NJ)
Rep. Alcee Hastings (D-FL)
Rep. Jeb Hensarling (R-TX)
Rep. Blaine Luetkemeyer (R-MO)
Rep. Gregory Meeks (D-NY)
Rep. Patrick McHenry (R-NC)
Rep. Randy Neugebauer (R-TX)
Rep. Pete Sessions (R-TX)
Rep. Steve Stivers (R-OH)
Rep. Kevin Yoder (R-KS)
Rep. Spencer Bachus (R-AL)
