Let The Game of Whack-A-Mole Begin: Feds Put Forward New Payday Rules, by Paul Kiel, ProPublica

http://www.propublica.org/article/let-the-game-of-whack-a-mole-begin-feds-put-forward-new-payday-rules

New rules put forward by the Consumer Financial Protection Bureau would have a major impact on the high-cost loan industry. But if history is any guide, lenders will quickly find some loopholes.

If there’s any industry that has mastered the art of the loophole, it’s high-cost lending. When faced with unwanted regulation, lenders are well-practiced at finding an opening that will allow them to charge triple-digit interest to their customers. As we have reported, they’ve been playing a giant, ongoing game of whack-a-mole with regulators and lawmakers in states across the country over the past decade or so.

Here’s only a partial list of dodges that have been employed over the years by payday and other high-cost lenders: posing as a credit-repair organization, posing as a mortgage lender, using a bank as a front, using a Native American tribe as a front, offering cash for free to hook borrowers, lengthening loan terms when rules targeted short-term loans, larding loans with useless insurance.

But after fights in cities and states across the country, the industry now faces its most powerful foe yet. The Consumer Financial Protection Bureau (CFPB), created by the 2010 financial reform bill, has the authority to regulate high-cost loans on the federal level for the first time. And on Thursday morning, the agency unveiled a first draft of new rules that would sharply reduce the number of payday loans made in the country. You can expect lenders to respond by opening up their playbook. . . .