Nati Harnik/AP Photo
A check cashing storefront in Omaha, Nebraska
Sometime this month, we will learn whether one of the most brazen pay-to-play schemes of the Trump era paid off. We’ll learn what the going rate is for changing a regulation. We’ll learn just how much of our government is for sale.
And it’s all thanks to a man named Mike Hodges.
He is the CEO of Advance Financial, one of the nation’s largest payday lenders. Advance operates over 100 storefronts in Tennessee, and through its website, strapped borrowers in select states across the country can also get a payday loan at an exorbitant interest rate.
Hodges is also a proud supporter of President Trump, giving him $1.25 million since 2016, by his own admission. In fact, Hodges is perhaps a little too proud. You might know his name because of an industry webinar he participated in this September, reported on recently by The Washington Post. In it, Hodges insisted that payday lender donations to the president will help them obtain access to top officials in the administration, and prompt service for their priorities.
“I’ve gone to [Republican National Committee chair] Ronna McDaniel and said, ‘Ronna, I need help on something,’” Hodges said on the webinar. “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.’”
The webinar, sponsored by an industry consultant named Borrow Smart Compliance, was quickly removed after the Post story. But Allied Progress, the consumer rights organization that along with American for Financial Reform initially found the video, noticed that Hodges also touted his work on the industry’s efforts to cancel a payday lending rule at the Consumer Financial Protection Bureau (CFPB). “I have gone to the White House and … the White House has been helpful on this particular rule that we’re working on right now,” Hodges boasted. “In fact, it’s, the White House’s financial policy stance to remove the rule and even the payments piece.”
Removing that last part—“the payments piece”—would be a major reversal for the CFPB, which promised to maintain it in federal court as recently as March. That was before Hodges spent $688,800 on donations to Trump and House Republican candidates, as well as $350,000 in lobbying. Now, CFPB director Kathy Kraninger says she will provide an answer this month on whether “the payments piece” will stay or go. If she flips, there’s strong, albeit circumstantial, evidence that Mike Hodges’s money played the deciding role.
“We believe this is an example of how all that money he’s raised hasn’t just bought influence and access, it may have bought a policy change to the detriment of consumers,” says Jeremy Funk, a spokesperson for Allied Progress.
Let’s back up.
For years, the CFPB had been working on rules governing payday lending, the small, short-term loans low-income borrowers use for emergency cash, which often trap them in a cycle of debt. In October 2017, when Richard Cordray still ran the bureau, CFPB released its final payday lending rule, the key provision of which would have forced lenders to determine a borrower’s ability to repay before making the loan.
The industry wouldn’t want to determine the ability to repay, because the point of payday lending is that the borrower can’t repay, and will subsequently take out several loans in a row, racking up fees all along. So lenders attacked the new rule, aided when Cordray left CFPB to run unsuccessfully for governor of Ohio, and Mick Mulvaney got installed in his place. Eventually Kraninger, a Mulvaney aide, was confirmed as director.
Mulvaney immediately delayed the payday rule, and under Kraninger in February 2019, CFPB gutted it, proposing to eliminate the ability-to-repay standard and almost everything else in there. However, in a statement accompanying the proposal, Kraninger did explicitly single out her commitment to what Hodges referred to as “the payment piece.” She wrote that the notice of proposed rulemaking would not “reconsider the provisions of the 2017 final rule governing payments.”
Those payment provisions require lenders to get written notice before making a withdrawal from a borrower’s bank account for the first time. It would also prevent lenders from attempting to withdraw funds after two previous attempts failed. The only way a withdrawal would “fail” is if the borrower had insufficient funds. This provision was designed to stop excessive fees from daily attempts to withdraw, both late fees from the payday lender and overdraft fees from the bank.
Under the rule, a borrower would have to sign a notice authorizing the lender to withdraw from the account after those two consecutive failures. “If I was smart, I would only sign that if there was money in there,” says Linda Jun, a policy counsel with Americans for Financial Reform, a regulatory and consumer protection coalition. “Aside from getting charged more for a negative balance, banks close bank accounts over this stuff, you could lose access to banking entirely.”
Access to bank accounts is standard for payday lending, and lenders don’t like restrictions that deny them additional fees. So in December 2018, Mike Hodges and Advance Financial filed an unusual formal petition, asking the CFPB to reconsider the payment provisions. This is legal under the Administrative Procedures Act, but rarely done by industry to ask for a rule change. Such matters are usually kept behind the scenes, rather than in a public letter.
Specifically, Hodges requested that CFPB exclude debit cards from the payment restrictions. Hodges’s argument was that denied debit card payments don’t incur overdraft fees, so borrowers would already be safe from such harms. A small-business panel, which under rulemaking procedures had to be consulted, had recommended excluding debit card transactions, and the petition intimated that CFPB would open itself up to “legal risk” if they didn’t agree.
The use of a petition to essentially demand a rule change was unfamiliar to CFPB watchers. “In my time looking at CFPB issues, I have not seen that before,” says Derek Martin, a director at Allied Progress. “I have not heard it brought up on other issues.”
Kraninger had this petition in hand for months by February 2019, when CFPB stated explicitly they wouldn’t be changing the payment provisions. A month later, in a federal court filing over the entire payday rule, CFPB continued to state that “it has not determined that further action is warranted” on the payment provisions.
Of course, by this time Hodges had employed a full-time lobbyist to work on the rule. Though he told the Post that he never “lobbied the administration,” in 2017 he hired Al Simpson, totally coincidentally the former chief of staff to Mick Mulvaney when he served in Congress. Simpson’s lobbying work focused on the “small dollar rule,” also known as the payday lending rule. He received $350,000 from 2017 to 2019 for his efforts. And he had meetings at the White House, where Mulvaney works, at least 14 times in that period, according to White House visitor logs. He appeared on Mulvaney’s calendars in one period in 2017 “more frequently than anyone who is not a current government employee.”
Hodges didn’t stop with lobbyists. Between February 2019 and today, he and his wife Tina have contributed $688,800 to Republican candidates for Congress, the Republican campaign arm of the House, the Republican National Committee, the Trump Super PAC America First Action, and other conservative political action committees. Hodges even hosted a fundraiser in Tennessee this October with Vice President Mike Pence.
Only $1,500 of the Hodges’s $688,800 went to Democrats: There was also $1,000 to David Scott of Georgia, a member of the House Financial Services Committee who often votes in a pro-business fashion, and $500 to Tulsi Gabbard, who is currently running for president.
Within six months of making all those donations, Hodges told his colleagues on the webinar that the White House was on board with removing the payment provisions. And a month later, in October of this year, five members of Congress who took money from Hodges and his wife questioned Kraninger in the House Financial Services Committee about the payment provisions, a rather obscure line of questioning for a congressional hearing.
Representatives Blaine Luetkemeyer (R-MO), David Kustoff (R-TN), John Rose (R-TN), Frank Lucas (R-OK), and Andy Barr (R-KY) all urged Kraninger to “address inconsistencies” and “compliance burdens” in the payment provision. All told, the five Republican representatives received $51,200 directly from Mike and Tina Hodges since 2017.
Suddenly, in a hearing before the Senate Banking Committee later in October, Kraninger said that she would respond to Hodges’s petition to reconsider the payment provisions. “We have a responsibility to respond to that petition within a year of it being sent to us,” Kraninger told lawmakers.
The rules require only that Kraninger come up with some procedure to handle the petition, says Linda Jun of Americans for Financial Reform. “I haven’t seen that they have to say yes or no, otherwise the industry could just ask agencies to do things all the time,” she says.
Nevertheless, Kraninger’s comments were seen as a potential reversal. Just seven months earlier, CFPB was insisting on no changes to the payment provisions. Now its director is vowing to do something regarding them. The only thing that changed in the interim was Mike Hodges firing a money cannon at Republicans.
“Technically, she could do the right thing and say, ‘We have given this industry enough,’” says Derek Martin of Allied Progress. “She has a choice, give in to the political will of the president, or say, ‘We’re not going to do this, we’ll protect consumers.’”
Lobbying and pay-to-play culture in Washington is often brazen, but rarely this bald-faced. You know it’s happening, but you don’t usually have the audio tape. Hodges “said out loud what we suspected all along,” says Jeremy Funk. “The more he can bundle up from the industry, the more influence he’s going to get. And I believe him. I absolutely believe him.”
