For the 12 million Americans who resort to high-interest, short-term payday advances to make ends meet each year, the loans are almost never intended to be a long-term financial strategy. Instead, they're a quick fix with potentially crippling results. Payday loans routinely carry interest rates of more than 400 percent and have other hidden fees that can drive up costs. Worse still, they leave consumers in a never-ending cycle of crippling debt - taking out new loans just to pay off the fees and interest on previous loans.
In nearly every way, payday loans are the perfect example of the type of predatory and destructive financial service that need to be reigned-in by the Consumer Financial Protection Bureau (CFPB), an independent federal agency formed in 2011. Currently, the CFPB is considering new rules to regulate payday lending and could enact real and lasting changes to give consumers much-needed protections.
But even as the CFPB crafts those new rules, insiders in the payday lending industry are working to do everything in their power to strip the regulations of their power to enact real reform - and it's not yet clear the CFPB will put its foot down to stop them. Earlier this summer, CFPB Director Richard Cordray named Patrick O'Shaughnessy, the CEO of Advance America, one of the largest payday lending chains in the country, to an Advisory Board position at the CFPB. O'Shaughnessy is also Chair of the Board of Directors of the Community Financial Services Association of America, the payday industry's special interest trade group. At the time of O'Shaughnessy's appointment to the CFPB Advisory Board, Cordray said such Consumer Advisory Board members would "provide valuable input to help us better understand the consumer financial marketplace."
In the interest of protecting consumers - and saving the CFPB some time listening to O'Shaughnessy's "advice" - it's not hard to predict where he stands when it comes to cracking down on unscrupulous lenders to better protect vulnerable borrowers. O'Shaughnessy called caps on fees and limits on refinancing "detrimental to [his] business" and also explained that he thinks borrowers choose short-term loans because they are transparent. Yeah, right. Meanwhile, employees at Advance America interviewed after they left the company have admitted to working to get customers to continually renew their loans - even using underhanded tactics to get those renewals.
It's hard to imagine how a someone who has made a career benefitting from high-interest lending will help usher in needed reforms if he thinks it will undercut his profit margin. And yet that seems to be exactly what the CFPB has asked him to do.
As if becoming an inside man at the CFPB is not enough to protect his payday loan shops, O'Shaughnessy has also contributed to payday lending special interest PACs which have donated large sums of money to the campaigns of elected officials.
It's no secret that this work has paid off handsomely for O'Shaughnessy. He has received millions of dollars in compensation, spent hours of personal travel time on Advance America's corporate jet, and owns a nearly 10,000 square foot $1.35 million mansion in South Carolina.
Unfortunately, most of Advance America's customers are not so blessed - often using one loan to pay off an emergency bill before they are pulled into payday lending quicksand. As the CFPB works to craft new rules, it would do well to remind O'Shaughnessy and other payday lenders that it works for consumers - not the industry insiders that strip families of wealth to line lender's pockets.