Mick Mulvaney’s Master Class in Destroying a Bureaucracy From Within | Hacker News Reader

Mick Mulvaney’s Master Class in Destroying a Bureaucracy From Within

nytimes.com

66 pointsbkohlmann36 comments

Alternative title: Elizabeth Warren succeeds in creating agency insensitive to political pressure.

I think the current administration is absolutely wrong about the payday loan industry. But at the same time the law that created the CPFB was terrible, and its frankly shocking to me that Elizabeth Warren failed to foresee this. She purposely created a particularly undemocratic institution which quite predictably, but to her horror, went off the rails.

The way to stop payday lending is through congressional action. The way to counteract unfriendly lobbyists is with horse trading. One of the reasons legislation like this has become harder is the disappearance of earmarks.

The simplest solution is private rights of collective action in court. The rise of the forced arbitration agreement that has been allowed used to ban class actions is anti-consumer and anti-free market. Markets cannot work correctly if consumers cannot band together to hold fraudsters accountable. This leaves the only possible source of accountability as the government, which is inherently problematic.

If they truly didn't believe in the implementation of the CFPB, they'd create legislation to fix it instead of trying to gut it. The problem is that they don't want financial protection for consumers.

"stop payday lending"

Have you asked any poor people about that? Because getting rid of payday lending just leaves people with worse options or no options at all.

I'm not naive. I understand the difficulties of unsecured consumer loans to the poorest borrowers.

As a society though, there are contracts which are unconscionable and these should not be enforceable by law. A lender who typically faces default rates of less than 10% while charging APR's greater than 400%, in my view should not get to use the full force of law to enforce their collections.

I'm a member of society (with a law degree) and think these are absolutely conscionable and in many circumstances (some of which I've been in), are absolutely beneficial. Looking at the APR on a very short-term loan for a very small amount is missing the forest and the trees for the crack in your glasses.

If you think these loans can be provided at a significantly lower rate, then you've obviously got a huge market opportunity in front of you, and should pursue it. Otherwise, you're advocating for removing what is often the best option in unfortunate circumstances.

I think it's patently obvious that these services rely on unconscionable contracts - they are literally premised upon financial coercion. However, litigation on the basis of unconscionability is unlikely to be successful due to market realities in the legal field.

Payday loans offer financially distressed individuals a method of accessing financing, despite their risk profile. This is laudable.

However, most studies on the matter produce voluminous reams of data regarding the debt-trap the industry creates. Ultimately, the public ends up shouldering a lot of externalities created by this loop.

Can we achieve the beneficial results while attenuating the magnitude of the wealth transfer from the poor and from taxpayers to the creditors in this instance?

It seems we can - there are other models used in the development world for delivering micro-loans which work better. But could they outcompete the margins generated by debt traps? Unlikely. Another avenue is to regulate the industry - which we already do. The Truth in Lending Act arose partially as a result of people being lied to about the contents of their credit agreements. We could create a schedule of fees for advanced amounts, allow for applications for non-scheduled fees on the basis of exceptional Opex or Capex requirements to serve a given community, etc with supporting margin calculations. This isn't hard - we already do far more complicated work in setting acceptable profit margins in construction, utilities, telecom, etc.

Are these solutions perfect? No. But are they better than the status quo? It would appear so. That's why we've migrated off the payday loan model for producing beneficial results in areas where the profit motive isn't the driver of service growth.

As someone who used to build the systems that process these loans online, I can vouch that indeed APRs are as high as 400% and do you know who owns the debit? Indian tribes, who are usually exempt from state laws and who sometimes you would literally have to meet with the chief of the tribe to settle a debt. Its insane, and sad, but few have no other choice because their credit is bad/maxed out

> no other choice because their credit is bad/maxed out

It's almost like credit is a market

Do you actually know what payday lending is and what the lending rates are like? They're designed to trap people in an endless cycle of high-interest debtorship.

Yeah if you look at APRs, except what the anointed don't want you to know is that these loans are very short term, not lasting years. This is a choice you're advocating to remove from people experiencing hardships you will never understand. The reason the interest is so high is that these are high risk and high necessity markets.

The two week loan typically gets rolled multiple times, and on average end up as as in the 60 to 90 day range. Payday lenders -- because of their nearly limitless willingness to roll loans -- face default rates of around 6 percent, similar to those of credit cards.

You have no idea what hardships I've faced, what my personal experience with the payday loans is or what my professional level of understanding about the industry is, so I'd prefer you not lecture me about what I will and won't understand.

You can make usurious loans if you like, but don't use our courts to collect. We don't want to be part of it.

But the loans are designed and in 80% of cases rolled over into a sequence of short term loans, meaning that looking at the APR is not as unreasonable as it might sound for a 2 week loan.

Source: CFPB study: https://files.consumerfinance.gov/f/201403_cfpb_report_payda... Personal experience: I've taken out payday loans they definitely tried to steer me into rolling them over

The thing is that most people who take a payday loan do so because of an emergency need such as a doctor bill, car repair, or rent shortfall. Then they are stuck because suddenly next months pay is already being spent today and its more expensive. About 85% of the traffic is repeat customers from what I observed when I built the online systems that would process these applications

If the interest were so high just to counterbalance the 'high risk', then lenders wouldn't be profiting the billions of dollars they are off of them. Why not just cap the APR at something less exploitative?

Do you actually know what default rates are like for people without access to better sources of credit? The interest rates are so high because that's the only way payday lenders can make money. In states with usury laws that prohibit such high interest rates, you don't see lenders lowering their rates; you see credit for poor people dry up completely.

Liz Warren does have a good solution to this, namely postal banking. (The US government can swing the losses incurred from lending small sums to high credit risks at low rates.) But just killing the payday lenders without setting up an alternative is not a good idea.

perhaps we should have a larger safety net instead?

Then go after payday lending by getting a bigger safety net, which undermines their customer base. "We need a bigger safety net, therefore we should ban one of the things that helps people in its absence" is not a coherent position.

Seems rather tenuous to blame Elizabeth Warren in 2010 for the actions of Mick Mulvaney in 2018.

This article leaves off a very critical detail around why people were critical of the CFPB in the first place.

Contra this statement:

> Their unease had only grown as Mulvaney ordered a hiring freeze, put new enforcement cases on hold and sent the Federal Reserve, which funds the C.F.P.B., a budget request for zero dollars, saying the bureau could make do with the money it had on hand.

That was advertised as a feature of the CFPB when it was originally created, as they are funded from the fines they collect from violations.

Anyone who has a problem with the incentives in privatized prisons should have a problem with the funding structure of the CFPB, as they are both policing for profit.

The main problem with things like privatizing prisons is that doing so seriously reduces the ability of the citizenry to affect how they operate, compared to them being run by the government.

And often, that's the idea, that privatizing what was originally something with some social oversight into something that can be abused. One glaring example for me is that the NSA is mostly contractors now.

Privatization is an unintended side effect of increasing government transparency (FOIA).

Just like the combo of increased roll call votes [1] and public disclosure commissions inadvertently increased the power of lobbyists, by allowing them to verify bought politicians stayed bought.

[1] vs voice votes, show of hands, other secret ballots

In that case, the citizenry voted their opinions on how the government should run the CFPB for 4 years.

That's a bit of a stretch. But at least the citizenry is able to do so.

That’s wrong. See Section 1017 of the Dodd-Franken act: https://www.govinfo.gov/content/pkg/PLAW-111publ203/html/PLA...

The bureau gets its funding from the Federal Reserve System. What the argument may or may not have been is that fines would exceed operating costs. But they don’t go directly to the bureau, which therefore still needs to finance its operations.

Collected fines do not go into the bureau’s general operating budget, but are supposed to be used for compensating victims or, if that’s not possible, specifically into financial literacy programs. Quote:

    “There is 
        established in the Federal Reserve a separate fund, to be known 
        as the ``Consumer Financial Civil Penalty Fund'' (referred to in 
        this section as the ``Civil Penalty Fund''). The Civil Penalty 
        Fund shall be maintained and established at a Federal reserve 
        bank, in accordance with such requirements as the Board of 
        Governors may impose. If the Bureau obtains a civil penalty 
        against any person in any judicial or administrative action 
        under Federal consumer financial laws, the Bureau shall deposit 
        into the Civil Penalty Fund, the amount of the penalty 
        collected.

            (2) Payment to victims.--Amounts in the Civil Penalty Fund 
        shall be available to the Bureau, without fiscal year 
        limitation, for payments to the victims of activities for which 
        civil penalties have been imposed under the Federal consumer 
        financial laws. To the extent that such victims cannot be 
        located or such payments are otherwise not practicable, the 
        Bureau may use such funds for the purpose of consumer education 
        and financial literacy programs.”

They are not the same thing.

A government program with a dedicated funding system (like, for example, the FAA) is a different thing entirely from a for profit entity.

The tell is that there’s no such thing is “profit” in a government context.

My problem with private prisons is not the fact that they're "policing" but about the injustice of keeping a human body in a cell in degrading conditions, which does not apply to the CFPB's actions, and the incentives about that. It seems equally sensical to argue that I should have a problem with the Rust compiler because it strictly enforces rules about appropriate behaviors, just like prisons do.

> That was advertised as a feature of the CFPB

The feature was not so much the fine paying for it, but rather Congress being unable to pressure it via the pocketbook. Which presumably Elizabeth Warren regrets now.

He's doing his job: keeping the little people in their place.

The easiest way to stop payday lending is to mandate weekly pay for anyone making under $100K a year. Why should workers be loaning two weeks pay, on average, to their employer?

Can someone summarize please? I can't see through the pay wall.

Here's a mirror: archive.is/fl5ta

Live by the sword, die by the sword.

The CFPB is an extra-constitutional body. It's creation and whatever happens to it just showcase how off the rails things are.

Extra constitutional? What does this even mean? What is every other government agency then?

> The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

- Tenth Amendment, Bill of Rights

The federal government does not have the right to create agencies and regulation at will. With certain exceptions (e.g. the DoD), it is reasonable to conclude that many federal agencies are, in fact, unconstitutional in scope.

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