Is the New Federal Payday Loan Crackdown on Hold?
The Consumer Financial Protection Bureau's interim director, Mick Mulvaney, appears to be doing exactly what consumer advocate groups feared he would: walking back historic regulations on payday lending.
This week, Mulvaney announced a plan to revisit a recent rule requiring payday and car title lenders to verify key information from prospective borrowers, including whether they can afford the loan payments. It is scheduled to go into effect in 2019.
Consumer protection groups such as the Center for Responsible Lending (CRL) had hailed the rule as a significant step toward curbing loans that can trap low-income borrowers in a cycle of debt. The Stop the Debt Trap Coalition noted that it was issued after years of research and extensive stakeholder input.
In an email to Governing, the CRL’s Diane Standaert warned that “this week's announcement is a signal that Mulvaney may be trying to make life easier for payday lending loan sharks to the detriment of consumers.”
The Takeaway: When President Trump appointed Mulvaney to the position in November, it caused near-hysteria among consumer groups who felt he would undermine the agency's mission. So far, those fears appear to be playing out -- Mulvaney is also asking that the bureau receive no new funding -- and state attorneys general may be losing their federal consumer protection ally. Still, it’s important to remember that the most powerful tool against payday lending -- setting interest rate caps -- remains in the hands of states.
Already, 15 states and the District of Columbia cap interest rates at 36 percent. Standaert would like to see more states do so. She noted that the payday industry is “aggressively” pushing bills in Florida and Indiana to allow long-term loans with interest rates of up to 200 percent APR, in addition to the 300 percent rate short-term loans they already make in those states. “States can and must follow the lead of the15 states plus the District of Columbia [in preventing] the harms of the payday lending debt trap," she said.
Banking on Pot
A bipartisan coalition of 19 attorneys general are urging Congress to change federal banking laws that are keeping legal marijuana businesses in their states from having a bank account. Federal law currently hinders banks and other depository institutions from providing financial services to marijuana businesses, even in the 29 states and the District of Columbia where those businesses are legal and regulated.
In a letter sent this week to House and Senate leadership, the AGs urged them to come up with safe harbor legislation for banks. “This would bring billions of dollars into the banking sector, and give law enforcement the ability to monitor these transactions,” they said. “Moreover, compliance with tax requirements would be simpler and easier to enforce with a better-defined tracking of funds. This would, in turn, result in higher tax revenue.”
Those signing the letter included attorneys general from Alaska, California, Colorado, Connecticut, D.C., Guam, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Vermont and Washington.
The Takeaway: The unbanked nature of marijuana businesses in states creates not only taxing and revenue concerns, but also public safety problems because owners are moving large amounts of cash to pay their bills. Compounding the state and federal conflict on the issue is the U.S. Department of Justice’s recent repeal of Obama-era guidance outlining how financial institutions could provide services to state-licensed marijuana businesses consistent with federal law. Rescinding the guidance, the attorneys general argue, has made even more urgent the need for congressional action to get the cash generated by this industry into a regulated banking sector.
A Better Way to Do Property Taxes
Localities typically bill homeowners once or twice a year for their property taxes. But what if -- like most bills we get -- they sent out a monthly bill instead? According to a new report, that would improve local governments’ fiscal health and could even spur greater political support for the tax.
The report by the Lincoln Institute of Land Policy found that while many homeowners have the option to pay property taxes monthly as part of their mortgage, fewer than half do so. The report’s author, Senior Research Analyst Adam Langley, says that the large, lump sum method of payment not only increases the property tax delinquency rate, but “is also likely to foster political opposition to the property tax and lead to policies that erode municipal fiscal health.”
To support his findings, Langley points to Milwaukee, where every homeowner can pay property taxes in monthly installments. “As a result,” Langley writes, “homeowners are five to 10 times more likely to make monthly payments than in cities and counties that require applications for prepayment.”
The Takeaway: Paying your property tax twice a year isn't just a hassle for homeowners. Property taxes are among governments' biggest source of revenue. Only receiving payments once or twice a year means cities and counties have to rely on short-term borrowing or hold large amounts of idle cash to meet payroll and other regular expenses.
The report recommends that states change laws to allow monthly property tax payments, and that local governments offer the option automatically to homeowners. Currently, only 16 states allow localities to establish such programs, but few actually do. Langley also suggests including an automated payment option for taxpayers and considering shared service arrangements with other governments to reduce the cost of tax collections.
To read this regularly, subscribe to "The Week in Public Finance" newsletter for free.