The day-to-day loan research given to CFPB had a curious start

Shortly after the Office of Consumer Financial Protection began preparing what would become the first major federal regulation for the multi-billion dollar payday lending industry, Hilary Miller set out at work.

Miller, a lawyer who has worked closely with the industry for more than 10 years, contacted a professor from Georgia to make her proposal: would she like to test one of the industry's biggest critics, namely that her clients suffer damage by regularly borrowing?

Over the next year, Miller worked closely with Jennifer Lewis Priestley, professor of statistics and data science at Kennesaw State University, suggesting a research to quote, the type of data to use, and even giving it re-reading courses. "Punctuation and capitalization are somewhat random," he said in a February 2014 e-mail responding to a draft report. "You might want your young aunt who attended high school before 1960 to read this."

Priestley's report was finally on the industry side and, according to the emails, Miller reportedly discussed the results with a CFPB economist. The report was also hand-delivered to a senior office official in 2015. The way in which it was taken into account in the bureau's decisions – including a recent decision to loosen industry regulation – was many times touted by supporters of payday loan.

[CFPB proposes weakening Obama-era payday lending rule]

Its origins shed new light on the long battle being waged by payday lenders to influence and undermine federal regulations. But there was probably little doubt about the results of the report.

At an exchange in December 2013, Miller told Priestley that he wanted to persuade her to change the way she analyzed credit rating data for borrowers. "I'm here to serve," said Priestley. "I just want to make sure that what I'm doing analytically reflects your thinking." His e-mail ended with a smiling face.

On the front page of the report, Priestley indicates that Miller's nonprofit organization, which awarded a grant of $ 30,000, exercised no control over the editorial content of this document. However, in an interview with the Washington Post, Priestley said he shared the author's report with Miller, but he declined.

"Not only does the payday lenders sector choose professors to write studies on their behalf; in this case, they write the studies themselves, "said Daniel Stevens, executive director of the Campaign for Accountability. "I have never seen a thing like this."

The non-profit group based in BC Got the emails after a three-year legal battle that reached the Georgia Supreme Court in 2018.

Miller declined to comment on this report.

& # 39; Party time & # 39;

These exchanges are part of hundreds of pages of e-mail – mailed and publicly disclosed for the first time – that illustrate the considerable efforts the industry has made to influence federal regulation. In addition to commissioning studies, payday lenders have been lobbying lawmakers, seeking the support of black clerics and even changing the venue for an annual conference. The Financial Services Association of America Communities held its 2018 meeting at the Trump National Doral Golf Club, near Miami, and plans to meet again this year.

"The place is popular with our members and it meets our needs," Dennis Shaul said in a statement. Shaul is the group's chief executive, which includes some of the biggest players in the industry, such as Advance America and MoneyTree.

These efforts culminated in a major recent win for the industry: earlier this month, the CFPB dropped radical new regulations, saving short-term savers $ 10 billion by 2020 On paydayloanindustryblog.com, a website run by an industry consultant, The News was greeted with a GIF representing President Trump's head on the dancers' body and the phrase "It's the party, baby!" "

The CFPB says it has not been influenced by industry lobbying on the issue. The bureau reviewed all existing evidence, including that which supported the research and criticized payday loans, and determined that they did not collectively support the existing rule, said Marisol Garibay, a spokesperson for the CFPB. The bureau did not discuss its proposal to cancel the rule with industry representatives before making the announcement, Garibay said.

[How Trump appointees curbed a consumer protection agency loathed by the GOP]

The reversal proposed by the bureau threatens the general rules of the Obama era, including the requirement for lenders to verify the income of borrowers and ensure that they can afford to repay it in time, requests that the industry considers potentially disastrous. Led by Kathy Kraninger, appointed by Trump, the CFPB said it would waive these requirements, saying there is not enough legal basis to justify such strict underwriting standards.

In its rationale for change, the CFPB also cited "two industry-sponsored surveys". The surveys had limitations, but they showed that consumers understood how long it would take to pay back their loans. concern of many critics of the industry.

Democrats and consumer groups have criticized the CFPB's decision, saying payday lenders are released after decades of imprisoning millions of low-income US citizens. The average payday loan is approximately $ 350 and has an interest rate greater than 300%.

Unable to repay their loans, borrowers take another, then another to keep pace with payments, say consumer advocates. A 2014 study by the CFPB revealed that the majority of borrowers renew their loans so many times that they end up paying more fees than the amount originally borrowed.

The industry "has launched a huge campaign against the adoption of rules governing payday loans," said Richard Cordray, the former director of the office, who led the development of the initial regulation. "They have done everything."

The office conducted extensive research on the issue, he said, but the industry was "not available with data", which complicated the process.

Payday lenders say that they provide an essential service to customers ignored by traditional banks. Without these short-term loans, borrowers would be forced to turn to loan sharks or take other risky or risky steps to cover their emergency expenses, say officials in charge. industry. Some federal standards are justified, but the original rules of the CFPB would have put most of them out of business, they said.

The study commissioned by Miller represented a little-known front in the payday lenders campaign.

Miller is a prominent figure in the industry and testified before the Senate in 2006 on behalf of the Community Financial Services Association, the large industrial group. He has also been president of the Payday Loan Bar Association.

In a 2016 statement, Miller said he had created the Consumer Credit Research Foundation to fund industrial research, but declined to answer questions about funding sources. He objected to the publication of his e-mail exchanges with Priestley, as the non-profit organization would suffer "irreparable harm", according to his trial.

"A wonderful paper"

In an interview with The Post, Priestley said she saw the project as an opportunity for two master's students to do interesting work. Miller provided a "massive" amount of data on payday borrowers, she said. "This allowed them to develop skills related to data cleansing."

The $ 30,000 grant was used to cover the expenses of these students and the university's overhead – not for her, she said.

In soliciting Priestley for work, Miller stated in an e-mail that he wanted to produce two articles of "peer-reviewed academic quality". But from the start, he sought to influence the study by sending dozens of edits to Priestley and helping him write the report language.

Miller, for example, has helped to move away from industry research. In an email in March 2014, he asked Priestley not to use the term "debt cycle," a term used by consumer advocates to describe borrowers who repeatedly made new loans to cover old ones.

"In general, we do not accept the idea that a" debt cycle "even exists, and I would be grateful if you would remove all references to that term, unless you deny its existence," he said. Miller in an email.

Priestley did use this term in his report, but only to describe the point of view of opponents of payday lenders. It also included a footnote indicating that the term was applied selectively to short-term loans and not to other forms of debt, such as credit cards or mortgages. This is an argument often put forward by payday lenders.

Miller also offered Priestley tips to anticipate potential criticisms of the research. Opponents of payday lenders argue that loan defaults are hurting borrowers, Miller said in an email in February 2014. "At least one possible counterfactual is that payment defaults improve welfare, because the lending is not easy. the borrower keeps the loan principal and the collection efforts are largely ineffective, "says the email.

When his research seemed to deviate from the subject, Miller reoriented it: "As a reminder, we are not interested in predicting the flaws [on loans]or by default, "he said in a June 2014 e-mail." What we're trying to find out is whether defaulting has a positive impact on the consumer's well-being after the default. We do this because the CFPB has stated that defaults are harmful to consumers. "

Priestley has also repeatedly solicited Miller's advice and approval, according to e-mails. Referring to data as to whether the duration of a loan can predict if a borrower would default, Priestley said in a January 2014 email: "If you think this finding is relevant, I can include this information in the results section. "

In an interview, Priestley said she relied on Miller's expertise in the sector. She had spent more than 10 years in various financial companies, including Visa and MasterCard, before becoming an academic, but had no experience in the payday loan business, Priestley said. While working on paper with Miller, she also studied homelessness and how to help doctors better utilize robots for hysterectomy treatment, she said.

"If you ever asked me what was a payday loan, I'm not sure I could have explained it, but I know a lot about mathematics" said Priestley.

Without a background in the subject, she said, Miller has become an important sounding board. "There were results and analytical results that I did not understand," she said. In these cases, she asked Miller for help in interpreting the data.

While she was beginning agnostic research on the issue, Priestley said that in the end, she had formed an opinion. "Payday loans have a role to play because you have people who can literally not get their hands on $ 10," she said.

In the lead up to the publication of the study, Miller congratulates Priestley for his work. The Priestley study found that payday loan clients who repeatedly borrow money over a long period "get better financial results" than those who borrow less. The report reveals that these borrowers have also benefited from living in states where payday loans are not very limited.

"It's a great article," he said in an email in April 2014. "When it's done, you'll be known and your phone will sound like a hook." The group was developing a strategy to publish the report, he said. "We want them to believe that the results are honest, verifiable and, above all, correct."

Priestley said that she had suggested listing Miller in the report and that she had not found that unusual when he had refused. Because Miller is a lawyer and not a doctorate, the credit probably would not have mattered to him, she said. "I did not think about it at all," she says.

The study, delivered by hand to a senior CFPB official, according to Miller's e-mails, was quoted by several industry supporters in opinion pieces criticizing the bureau's rules. In an opinion piece published in the 2015 Detroit News titled "Rules threaten payday loans for low-income borrowers," Jeffrey H. Joseph, a professor at George Washington University, cited the report. In a report published in October 2016 by the Competitive Enterprise Institute entitled "Ending Payday Loans Harming Consumers", Miller repeatedly referred to the Priestley Report without mentioning its link to it.

As they finished the project, Miller offered Priestley a little extra advice. The results would subject him to scrutiny from opponents of the sector, he said during an email exchange in 2014.

"Should I hire a bodyguard?" She replied.

"I think steps lower than those of a bodyguard (like, for example, a guard dog or barbed wire in your residence) may be enough," Miller said.