How the payday loan industry laundered policy by paying academics to write papers that supported its positions

When Elizabeth Warren inaugurated the Consumer Financial Protection Bureau, one of her prime targets was subprime/payday/predatory lenders; and the lenders' lobbyists went on an all-out blitz, eventually prevailing under Trump's CFPB boss Mick Mulvaney.

The nonprofit Campaign for Accountability used public records requests, suing all the way up to the Georgia Supreme Court, to reveal how the industry paid academics to produce papers that were secretly co-authored by lobbyists that supported the idea that payday lending benefited poor people who were underserved by the traditional finance industry.

The docs reveal how Hilary Miller, an attorney with more than a decade's worth of close ties to payday lenders, arranged for a $30,000 grant to Kennesaw State University statistics and data science professor Jennifer Lewis Priestley — who had no previous research experience in payday lending — and proceeded to dictate which sources Priestly should cite, which words she was allowed (and prohibited) from using in her report.

Priestly eventually published a paper that was relentlessly promoted by the payday lending industry and its paid PR staff, which supported the idea that payday lending was socially beneficial.

The docs reveal that Miller was so entrenched in the drafting, revision and structure of the paper that Priestly offered to give Miller a co-author credit, which Miller declined, preferring to work from the shadows.

The Priestly paper was part of a larger, extremely well-funded charm offensive that payday lenders mounted, which is revealed in detail through the public records requests, which includes recruiting Black clergy members, lobbying Congress, and changing the location of its annual conference to the Trump National Doral Golf Club near Miami.

The strategy paid off. When the CFBP killed its Obama-era rules limiting the industry's most predatory tactics, it said that it had new data that showed that the initial policy was unsupported by the evidence. This is very important: as FCC Chairman Ajit Pai is discovering, the law governing administrative agencies requires that they show evidence to support every rule they make or delete.

The payday lenders provided an important service to Trump and his appointees, bringing a rare moment of administrative competence to their evil plans — rather than simply axing the Obama-era rule and exposing themselves to the risk of having the rule restored by a court, they actually did the careful work of procuring falsified but plausible research to support the change.

In soliciting Priestley for the work, Miller said in an email that he wanted to produce two "academic quality, peer-reviewable" papers. But from the beginning, emails suggest he was very involved, sending Priestley dozens of edits and helping craft the report's language.

Miller, for example, in a March 2014 email, he asked Priestley not to use the term "cycle of debt," a phrase employed by consumer advocates to describe borrowers who repeatedly take out new loans to cover the old ones.

"In general, we do not accept the notion that a 'cycle of debt' even exists, and I would appreciate it if you would delete all references to this term, unless you are rebutting its existence," Miller told her in an email.

Priestley did use the term in her report, but only to describe the views of opponents of payday lenders. She also included a footnote saying that the term was selectively applied to short-term loans and not other forms of debt such as credit cards or mortgages. That is an argument often made by payday lenders.

Miller also offered Priestley guidance in anticipating potential critiques of the research. Opponents of payday lenders argue that loan defaults are harmful to borrowers, Miller said in a February 2014 email. "At least one possible counterfactual is that defaults are actually welfare-enhancing because the borrower gets to keep the loan principal and collection efforts are largely ineffective," the email said.

Miller also wrote her: "As a reminder, we are not interested in predicting defaults [on loans], or in who defaults," he said in a June 2014 email. "Rather, we are investigating whether the fact of having defaulted makes a difference in a consumer's welfare after the default. We are making this because the CFPB has asserted that defaults are harmful to consumers."

How a payday lending industry insider tilted academic research in its favor [Renae Merle/Washington Post]

(Image: swanksalot, CC-BY-SA)

(via Naked Capitalism)