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This story was reported in partnership with Type Investigations, with support from the Puffin Foundation.
Mike Hodges was still a small fry among payday lenders when Donald Trump visited Hodges’s hometown of Nashville, Tennessee, in 2018. Hodges and his wife Tina owned somewhere around 100 stores scattered across the state, giving out small-dollar loans for fees that work out to annual interest rates as high as 450 percent. Their firm, Advance Financial, was puny compared to the chains of 1,000 or more that rose from the industry’s pioneers in the 1990s. But the Hodges quickly distinguished themselves as major donors to Trump, shelling out more than a million dollars to his campaign and main super PAC. In January 2018, Hodges told a reporter for USA Today that he was among those granted a private audience with Trump when the president showed up in Nashville to give a speech at the Gaylord Opryland. The following October, the couple co-sponsored a Nashville appearance by Vice President Mike Pence, where ticket prices ranged between $1,000 and $100,000.
By then, Mike Hodges had emerged as the industry’s point person with the Trump White House — access he openly boasted about purchasing.
“Every dollar amount, no matter how small or large it is” is important, Hodges explained two weeks ahead of the Pence fundraiser, according to an audio recording from an industry webinar obtained by the Washington Post. Hodges mentioned the chairwoman of the Republican National Committee: “For example, I’ve gone to Ronna McDaniel and said, ‘Ronna, I need help on something.’ She’s been able to call over to the White House and say, ‘Hey, we have one of our large givers. They need an audience.’”
America’s payday lenders and others selling exploitative financial products to the working poor have enjoyed a string of victories since Trump took over as president. Enforcement actions against the industry by the Consumer Financial Protection Bureau have fallen dramatically, and the country’s top banking regulators appear to be readying a loophole that would let payday lenders operate even in jurisdictions where local governments have banned their product. A whistleblower inside the CFPB charged in August 2019 that his bosses had ordered staff economists to rig a study so that it downplayed harm to consumers who repeatedly take out payday loans.
The biggest losers in this arrangement have been America’s working poor — above all, Blacks and Latinos, who are trapped disproportionately by payday lenders’ exorbitant fees (typically $15 per $100 for a loan due back usually in two weeks). The industry foremost sees green, and also operates in white low- and moderate-income communities. But a 2017 study by the Center for Responsible Lending showed that predominantly minority communities in Colorado were seven times more likely to have a payday lending store than predominantly white communities. A 2012 study by Pew Charitable Trusts found that Blacks were three times as likely as whites to have taken out a payday loan.
Hodges and his industry colleagues have gone all-in on a president who claims to “love the Hispanics,” be the greatest for Black Americans since Abraham Lincoln, and who has paid essentially no federal income tax for years by manipulating bank loans and the tax system, quite possibly fraudulently. Even after the coronavirus pandemic hit, the payday moguls could count on Trump. Initially, these storefront lenders were barred from participating in the Paycheck Protection Program designed to bail out small businesses. Yet after an intense lobbying campaign, the administration apparently shifted course: Records of PPP recipients released in July revealed that dozens of payday lenders and similar businesses received at least $9 billion from the program. (Hodges’ company, with more than 500 employees, the threshold for PPP, was not eligible for the program.) Presumably, none of these companies will pay triple-digit interest rates on any money they might have to payback under the PPP rules.
The industry’s biggest win came in July, when the Consumer Financial Protection Bureau announced that payday lenders will not have to verify a borrower’s ability to repay a loan before lending them money. The ability-to-repay requirement was hatched (but not quite finalized) during the Obama administration. Under that policy, payday lenders would have a choice: do the necessary underwriting to determine a borrower’s ability to pay back a debt, or limit them to no more than six loans per year.
The Trump administration killed the rule before it could take effect, adding to the vulnerability of those hardest hit by the pandemic economy. “There is never a good time to enable predatory loans carrying 400 percent interest rates,” says Michael Calhoun, president of the Center for Responsible Lending. “But this is the worst possible time.”
I first encountered Mike Hodges in 2008 while working on a book about how the financial crisis was generating boom times for the country’s payday lenders, check cashers, and other businesses part of what might be called Poverty, Inc. In Las Vegas, he and his wife were attending the 20th annual gathering of the what used to be called the National Check Cashers Association, a group which later expanded to include pawnbrokers, auto title lenders (who charge sky-high rates from borrowers using their cars as loan collateral), and others peddling high-priced services to a struggling, down-market clientele. The organization rebranded itself the Financial Service Centers of America, at once more respectable-sounding and opaque.
Hodges and his wife stuck out when I spotted them sitting alone at a big round lunch table at the Mandalay Bay Resort and Casino on the first day of the FiSCA conference. Like most every other attendee, they were white, but also far younger and more fit than their typical counterparts. In a sea of polyester and ill-fitting sportcoats, they were dressed in polos and khakis, looking as if they were attending a stockbroker’s convention. Hodges welcomed the chance to share his views on the industry he was breaking his way into. While the bigger players then were focused on further national expansion, he wanted to convince the wider public that payday lenders were legitimate, not parasitic. “They’ve put much more effort into lobbying and not enough into public relations,” he said of the industry’s old guard. So tainted was the term “payday loan,” he added, that he called the transaction “cash advance,” both at his stores and on television ads for Advance Financial. “The term ‘payday’ has become the black skull and cross bones of our industry,” he said. Still, business was good, not despite the deep recession that had overtaken much of the world in 2008, but because of it: “We’re at record loan volumes,” he boasted then.
Today, as the Hodges operate storefronts across Tennessee and provide online payday loans in another dozen states, they have expanded their political patronage. Hodges contributed more than $150,000 to the Trump campaign in 2016, according to the Federal Election Commission. In 2018, Mike and Tina Hodges gave $125,000 each to America First Action, Trump’s main Super PAC, and Hodges himself chipped in another $250,000 in 2019. Whereas the Hodges and their employees contributed under $10,000 during the 2014 election cycle, the Hodges and others at Advance Financial gave at least $410,000 in the 2016 cycle and at least another $1,045,000 in the lead up to the 2018 midterm elections, according to the FEC. The vast majority of that money went into Republican campaign coffers, including the campaigns of individual House and Senate Republicans and various Republican campaign committees. (Hodges himself donated $125,000 to the RNC in 2019, according to the FEC, and another $60,000 to the National Republican Congressional and Senatorial Committees.) The Hodges and their employees had already contributed another $800,000-plus by the time the recording of Hodges boasting of his connections to the Trump White House emerged.
“It’s hard for me to say this number because if you told me this five years ago, I would have thought you were crazy,” Hodges told the Post. “But we’ve donated about $1.25 million to [Trump’s] campaign so far. So Tina and I have become, I would say, one of the larger donors to the campaign over the last couple of years.” Since then, the Hodges and employees of Advance Financial have made at least another $528,000 in campaign contributions—again, nearly all of it to Republicans. Hodges declined to be interviewed for this story, opting instead to send a quote from Hunter S. Thompson: “In a democracy, you have to be a PLAYER.”
By the time Trump was elected, the country’s payday lenders were used to being under regulatory siege. A sweeping set of financial reforms President Barack Obama signed into law in 2010 created the Consumer Financial Protection Bureau, which payday lenders saw as a potentially existential threat to their business. Phil Locke, who for five years served as president of the pro-payday Michigan Financial Service Centers Association, recalled “constant” emails from FiSCA warning about a new federal watchdog with the power to crack down on “unfair, deceptive, or abusive acts or practices.” Six months after its inception, the CFPB announced its intention to investigate the payday lending industry. “People were petrified of the CFPB,” Locke said at the time.
The CFPB spent five years considering a new rule to govern what it dubbed “small-denomination loans.” Obama himself weighed in on the topic when, in a speech in 2015, he said, “As Americans, we don’t mind seeing folks make a profit….But if you’re making that profit by trapping hardworking Americans into a vicious cycle of debt, you got to find a new business model.”
Researchers working for the CFPB discovered that three in every four payday loans go to borrowers who take out more than ten loans a year. Three out of every five were made to borrowers who, by the time they had paid off a loan, had spent more in fees than the amount borrowed. A person who borrowed a typical sum of $400 needed to scrounge up $460 in two weeks to repay the loan. Yet more than half of payday’s customers, their researchers found, were refinancing their loans so many times in a row that they paid at least $400 on the original $400 loan. These were people living on the economic margins — and once again, they were disproportionately people of color.
The average payday borrower earns about $30,000 per year, according to a 2016 Pew study, and 58 percent were already having trouble meeting their monthly expenses without the additional burden of repaying a high-fee, short-term loan. The CFPB did not have the authority to cap the interest rates a company could charge, so instead it created the ability-to-repay policy. If implemented, CFPB researchers said, the policy would save consumers $7 billion a year.
With that highly profitable cycle of debt under threat since the Obama administration, the donations to Trump began to flow. Allan Jones, the founder and CEO of payday lender Check Into Cash and other executives at his management company contributed more than $65,000 to the 2016 Trump campaign, according to the FEC, and his company gave $25,000 to the president’s inaugural committee. Advance America, the country’s largest payday chain (1,500 stores), contributed at least $250,000 to Trump’s 2017 inauguration. Rod Aycox, an early champion of auto title loans, gave $1 million to the inaugural committee. In 2018 and 2019, the Community Financial Services Association of America, a payday trade group, held its annual meeting at the Trump National Doral hotel outside Miami, pouring roughly $1 million into the Trump Organization coffers, according to estimates by ProPublica.
Payday lenders were also spending more than $1 million a year on the services of dozens of Washington lobbyists. Hodges seemed to outdo everyone when in 2017 he hired lobbyist Al Simpson, who had until that year served as Mick Mulvaney’s chief of staff in Congress. As a lawmaker, Mulvaney had dubbed the CFPB a “joke… in a sick, sad kind of way.” He had since gone to the White House as Trump’s director of the Office of Management and Budget—and soon took on a second role as the CFPB’s interim director. Simpson met repeatedly with Mulvaney, according to the Washington Post, while Mulvaney was doing that double duty. (Next, Mulvaney would become Trump’s third chief of staff.) As of October, Advance Financial’s parent company spent $450,000 on Simpson’s services, according to the Center for Responsive Politics. (Simpson and Mulvaney did not respond to requests for comment.)
One of Mulvaney’s first public acts as the CFPB’s acting chief was to suspend the new ability-to-repay standard that the bureau had crafted after a five-year process, announcing the bureau’s intention to reconsider it. One month later, Mulvaney requested a budget of zero dollars. “I’ve been assured,” he wrote in the request, that there was enough money already in hand “sufficient for the bureau to carry out its statutory mandates.” The CFPB froze new investigations and announced it had dropped a lawsuit against four companies it had charged with running illegal payday lending operations using interest rates of up to 950 percent on an annual basis. Scores of other cases would also likely fade under this new regime, according to a New York Times investigation. An analysis by the Consumer Federation of America showed that under the previous (and first) CFPB director, Richard Cordray, consumers received $43 million a week in relief from the CFPB, but that the amount had fallen to under $500,000 a week under Mulvaney.
When Mulvaney was named Trump’s acting chief of staff in December 2018, his deputy at the Office of Management and Budget, Kathy Kraninger, took over the helm of the Consumer Financial Protection Bureau. Her background was in homeland security. She had no experience working in the world of financial services. Yet by a vote of 50-49, the Senate approved Kraninger as the CFPB’s permanent director. She appeared to be a lock for a five-year term that would stretch through the end of 2023, until the Supreme Court ruled in June that a president could fire the bureau’s chief without cause (meaning a new president could replace whoever was running the agency).
In February 2019, Kraninger announced her intention to gut the ability-to-repay rule before it went into effect, claiming there was “insufficient evidence and legal support” to justify it. Federal regulatory agencies didn’t typically just toss a new rule born of a five-year process; studies had be conducted and rationales offered. But the Trump administration apparently had a solution for that process: rig it. In April, the New York Times revealed that CFPB economist Jonathan Lanning, on his last day on the job, had written a memo that accused Trump appointees of pressuring career employees to manipulate the research. That included the use of “statistical gimmicks to downplay the harm consumers would suffer if the payday restrictions were repealed.” Matt Leas, a spokesman for the CFPB, said at the time that the agency has “a fair, transparent and thorough” process for making rules.
By June of last year, the bureau bought itself more time to bury the ability-to-repay policy by issuing a 15-month delay of compliance.
These moves were “a slap in the face to consumers—especially people of color—who have been victims of predatory business practices and abusive lenders,” said civil rights advocate Vanita Gupta.
Since the pandemic began in March 2020, says Center for Responsive Lending analyst Graciela Aponte-Diaz, “we’ve seen an administration taking advantage while everyone’s attention is on the coronavirus to pass all these rules that make it easier for corporations to harm consumers.” Indeed, the CFPB in July officially killed the ability-to-repay rule.
The Trump administration seems to have at least one more gift in mind for the industry. In recent months, regulators at both the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have been laying the groundwork for a policy known as “rent-a-bank,” which would allow payday lenders to arrange loans through out-of-state banks, allowing them to bypass state laws imposing interest rate caps.
That latest “scheme,” as Aponte-Diaz called it, is perhaps the next payoff for a big investment in the current occupant of the White House. “You’ve got people suffering, but this is another example of the Trump administration helping the payday lenders.”
Research assistance by Mary Retta and Maha Ahmed.