North Carolina Republican Senate candidate Ted Budd used his congressional office to press federal regulators to let financial institutions evade his own state’s prohibitions against predatory lending, despite warnings from local watchdog groups that the move would cost North Carolina borrowers almost a half billion dollars.
The lawmaker’s pressure campaigns coincided with influxes of cash from Wall Street donors, according to an extensive review of federal records by The Lever. Budd also helped those same finance industry donors try to gut rules preventing them from hammering North Carolina small businesses and consumers with debit card fees.
Now, more donor rewards for Budd are on the way: Wall Street cash is flooding into North Carolina to boost his Senate campaign as new polling shows that Budd and his Democratic opponent Cheri Beasley are in a dead heat ahead of the election next month. The outcome could determine which party controls the upper chamber next year, and whether Budd is vaulted into an even more powerful position to help his Wall Street benefactors deregulate the financial system.
The swing-state candidates are vying to replace Republican Senator Richard Burr, who is retiring following a federal probe into his infamous $1.6 million stock dump days before COVID-19 sent markets tumbling. Rather than offering voters an anti-corruption candidate to clean house from that stench of scandal, Republican leaders coalesced behind a Senate nominee who has flagrantly pushed his donors’ agenda, even as it has enabled the financial industry to prey on citizens of his home state.
Since being elected as a small-business champion in 2017, Budd has left a lengthy paper trail of his work on behalf of banks. At public hearings, in House floor speeches, and in letters to federal agencies, he has helped finance industry lobbyists press for legislation to allow banks to charge higher fees to retailers and hounded regulators to allow banks and lenders to bypass state interest rate regulations.
“It’s very clear that Budd is on the list of Republicans on the committee who will sign those letters written by the industry itself, calling on regulators to lay off,” former Rep. Brad Miller (D-N.C.), who fought to regulate banks and predatory lenders, told The Lever. “There’s real money that comes with being willing to sign those letters.”
Last week, the American Bankers Association — a lobbying group that represents the nation’s largest financial institutions — announced a new ad campaign to promote Budd’s Senate candidacy. At the same time, a pro-Wall Street super PAC called Club For Growth Action has spent $9 million on ads this cycle boosting Budd’s Senate campaign and attacking his opponents. Club for Growth’s political action committee (PAC) is also Budd's top source of campaign cash this election cycle.
The group has raised more than $258,000 in individual donations for the candidate, and contributed $2,850 from its PAC, according to data from OpenSecrets. Budd has also received more than $360,000 from individuals employed in the lending and financial services industries.
Budd’s campaign did not respond to a request for comment.
The American Bankers Association’s First Political Ads
A gun store owner elected to Congress during Donald Trump’s first presidential run, Budd arrived in the House of Representatives in 2017 and immediately picked a high-profile fight. Abruptly discarding the pro-small-business, anti-Washington-swamp themes that defined his first House campaign, he positioned himself against small business and turned himself into a darling of the capital city’s bank lobbyists, which handily rewarded him with campaign contributions and TV ads.
That year, Republicans were attempting to use their new governing trifecta to repeal major provisions of the 2010 Dodd-Frank Act, a law designed to better regulate the financial industry after it caused the global recession.
But one provision in the statute posed a tricky political issue. The so-called “Durbin amendment,” written by Sen. Dick Durbin (D-Ill.), set a cap on debit card swipe fees — the fees that banks charge stores when a card is used to make a purchase.
These so-called swipe fees create costs for retailers — some of which are passed along to customers, making goods more expensive — but provide a windfall for banks. By one estimate from Goldman Sachs in 2017, the cap had prevented banks from vacuuming in an additional $9 billion in revenue. The National Retail Federation, a lobbying group for big retailers, estimated the fee cap saved customers $6 billion annually, and had saved retailers $8.5 billion in the first year alone.
Retailers and banks are both major GOP donors, and some Republicans wanted the Durbin Amendment to remain on the books.
But not Budd.
As a local retailer, Budd had campaigned as a small businessman and was financially backed by major retailers, including $10,000 from Lowe’s and $3,000 from AT&T. On the swipe fee issue, however, he sided with the banks.
“There’s $6 to $8 billion per year at play here, and the violation of a core free-market principle: the notion that government should not be telling people what they can or can’t charge,” Budd said in a floor speech on the Durbin amendment in May 2017.
Budd’s work on behalf of the banks was backed by the Electronic Payments Coalition, a lobbying group for major banks and other lenders, which ran radio ads in Budd’s district praising his position on the bill.
The group lists the Durbin Amendment as a key issue. When the Electronic Payments Coalition’s executive director left the organization following year, Budd said in a statement, “Molly is an exceptional leader that knows how to get things done. Her leadership brought the Electronic Payments Coalition tremendous success, and I know that she’s going to achieve the same level of excellence at American Airlines.”
Though the repeal measure failed because of a lack of GOP support, Budd was flooded with donations from banks that spring and summer.
Between May and August 2017, Budd received thousands in contributions from the corporate PACs of multiple banks, including Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs, Capital One, BNY Mellon, and Morgan Stanley, as well as the PACs of bank lobbying groups like the Financial Services Roundtable, the American Financial Services Association, Securities Industry And Financial Markets Association, the Independent Community Bankers Of America, and the Mortgage Bankers Association.
And in 2018, the American Bankers Association bought political ads for the first time ever — spending six figures boosting Budd. One ad featured Kelley Earnhardt Miller, CEO of the car racing team JR Motorsports, praising Budd for having “the business interests at heart when he’s working on policy.”
At one point the ad features a picture of Budd with the caption “TED BUDD INTRODUCED THE REGULATORY REFORM ‘RESET ACT OF 2017,’” while Earnhardt’s voiceover says “It’s very refreshing to have Congressman Budd willing to go to bat for regulatory reform, to help alleviate some of the pressures that business owners are feeling through the relationships they have with their banks,” presumably referring to the swipe fee fight.
The American Bankers Association ran ads for him again in 2020, and announced a new ad for Budd last week.
Rent-A-Bank
The congressional battle over swipe fees was just the beginning of Budd’s work on behalf of banks.
After Republicans lost control of the House in 2018, Budd pivoted to successfully pressuring regulators to allow banks and consumer lenders to set up convoluted schemes to bypass state interest rate laws — including those in North Carolina. Once again, his requests to regulators coincided with influxes of campaign cash from banks and predatory lending institutions.
Large banks are regulated federally, while consumer lending institutions — such as payday lenders and fintech firms that offer consumer loans — are regulated by states, most of which limit the interest rates on those loans.
At least 18 states, including North Carolina, limit the interest rate on consumer loans to 36 percent. All but seven states cap the interest rates on these loans.
For decades, predatory consumers lenders have tried to use a “rent-a-bank” scheme to bypass these state usury laws: Banks in other states originate the loans on behalf of the lenders, so the lenders aren’t subject to their own states’ interest rate limits. North Carolina has some of the strictest usury laws in the country, making it a prime target for this type of maneuver.
The rent-a-bank scheme has left North Carolina consumers paying interest rates on loans as high as 521 percent, according to state Attorney General Josh Stein (D).
But in 2015, a federal court ruling created uncertainty as to whether the tactic was legal. Amid this uncertainty — and as a spate of online lenders created more demand to use banks to bypass interest rate laws — Republicans on the House Financial Services Committee introduced legislation in 2017 to statutorily legalize the maneuver, preempting state usury laws.
Budd voted in favor of the bill out of committee in 2017, and in February 2018 he spoke on the floor in favor of the legislation ahead of a House vote.
“We are on the verge of something special in the financial services space, with financial technology opening the industry up to amazing innovation,” said Budd. “This bill will ensure that innovative lending practices remain intact, allowing creative and innovative sources of capital to reach the consumer and small businesses. This is important because it will help to preserve the relationship between banks and fintech firms.”
Democrats and advocacy groups warned that the bill would allow banks to serve as fronts for predatory lenders. “There is a good reason over 200 civil rights, consumer, faith-based, housing, labor, and veterans advocacy organizations oppose this bill,” Rep. Maxine Waters (D-Calif.), the ranking member on the House Financial Services Committee, said in her own floor speech, adding: “We cannot advance a bill that will allow non-banks, like payday lenders, to ignore state interest rate caps and make high-rate loans.”
The bill passed the House, but no action was taken on the Senate version.
So in 2019, Budd and the ranking member on the Financial Services Committee Rep. Patrick McHenry (R) — a fellow North Carolina lawmaker — led a letter to bank regulators demanding they prioritize codifying rules allowing lenders to evade state usury laws.
“We believe administrative solutions to mitigate the consequences of the Madden decision are available and achievable,” read their letter to Comptroller of the Currency Joseph Otting, former president and CEO of OneWest Bank, founded by Steve Mnuchin. “Specifically, the [Office of the Comptroller of the Currency (OCC)] has the authority to update its interpretation of the definition of ‘interest’ under the National Bank Act’ to ensure that our nation’s policies governing usury laws are applied on a clear, consistent basis nationwide.”
That letter came amid a flood of cash from the bank and lending industries. In September 2019 alone, individuals gave $13,500 in earmarked contributions via the Club for Growth Action PAC.
Just a few days after Budd sent the letter, he received a maximum individual contribution of $2,800 from Royce Everette, the president of a North Carolina-based consumer lending company, Time Investment Company. That firm was a founding member of the state’s consumer lending trade association. (Time Investment Company also donated $25,000 to Club for Growth Action this election cycle.)
Everette’s mother and co-owner of the firm, Gail Blanton, gave $1,000 on the same day. Budd also received $2,000 from the American Financial Services Association PAC, a consumer lending lobbying group with which Everette was involved.
Budd also received contributions that month from the PACs of Citigroup ($4,000), Discover ($1,000) Wells Fargo ($3,000, from the employee PAC), Regions Financial ($3,000), UBS ($5,000), Morgan Stanley ($2,500), and Quicken Loans ($2,000), among other financial institutions with a potential interest in OCC rulemaking on the issue.
A month after Budd’s letter, Otting replied to him directly and said that “we agree that administrative solutions” may be available, according to documents obtained by Government Attic through a public records request.
Another month later, in November 2019, Otting’s office issued a proposed rule mirroring Budd’s request.
In December, the Federal Deposit Insurance Corporation (FDIC), which regulates state-chartered banks, issued a similar proposed rule.
In January 2020, 22 state attorneys general — including Stein from North Carolina — wrote to Otting opposing the proposed rule.
“The Proposed Rule would facilitate these arrangements by extending a particular privilege — the right of National Banks to preempt state usury laws,” the letter said. “The OCC would do so despite previously having condemned these arrangements as ‘abus[iv]e’ and ‘highly conducive to the creation of safety and soundness problems.’”
Both the FDIC and OCC finalized their rules in 2020, and the Biden administration has kept the rules in place.
“A Get-Out-Of-Jail-Free Card To Predatory Lenders”
Even after helping his lending industry donors win that fight to evade state usury laws, Budd continued his push on behalf of lenders to block regulations around interest rates.
In the winter of 2019, Democrats had introduced legislation to set a national interest rate cap of 36 percent — the cap already in place for members of the military. Two days after a national poll showed 70 percent of Americans support such an interest rate cap, Budd railed against the proposal, arguing that such a cap would limit consumer access to credit, a common argument in favor of predatory lending.
“If we cap the interest rates at 36 percent, what is going to happen to access for credit for the unbanked and the underbanked folks across our country?” Budd asked a witness during a February 2020 hearing on the matter. “Will their need for credit just magically disappear, or is it more likely they will turn to unregulated credit if regulated creditors turn them down?”
This is another common argument that banks and lenders make to defend predatory practices.
“Their argument is always the same — that this is helpful to people who otherwise couldn’t get credit,” said Miller, the former North Carolina congressman. “Yeah, they could get credit, on non-predatory terms. Except the people who need to borrow are the nation’s most powerless people, and the people who want to get rich by cheating them on consumer credit have made big investments in political influence.”
In April 2020, weeks after Congress passed the CARES Act stimulus legislation to respond to the COVID-19 pandemic, Budd led a letter to Trump regulators requesting they ensure payday lenders were eligible for the Paycheck Protection Program, which was meant to provide forgivable loans to small businesses to keep their employees on payroll, rather than laying them off.
Then, that July, just months before the presidential election, Budd and committee Republicans pushed the OCC and FDIC to go even further in helping lenders bypass usury laws, and issue a rule declaring that banks are the “true lender” when they are listed on the paperwork of loans they originate on behalf of other entities — even if they don’t have a financial stake in the loan.
While the rent-a-bank rule Budd had previously secured had said that the interest rate on a loan remains valid even after being transferred to a third party, this new “true lender” rule would make it harder to contend that the bank had not been the original lender.
In turn, that would make it even easier for lenders to bypass state interest rate laws, and nearly impossible for state attorneys general to prosecute them for illegal rent-a-bank schemes. For North Carolinians, that could mean $460 million in additional loan fees every single year, according to an analysis from the North Carolina-based Center for Responsible Lending.
“This rule, if implemented, will bring back the harms associated with predatory lending and limit our state’s ability to protect our consumers from those harms,” the group wrote in a comment on the proposed rule. “Instead, making these loans available to low income and low wealth people in North Carolina will trap the borrowers in a cycle of debt. It will also see a slew of other harms, ranging from car repossession, assessment of bank overdraft fees; negative impact on borrowers’ credit scores; reduced ability to pay for food, rent, and utilities; wage garnishment; and even bankruptcy. This type of credit is predatory.”
The same day Budd sent his letter, Everette once again gave Budd $2,800, and three of his family members donated $500 each. Budd also received $2,000 from the Bank of America PAC that day and $500 from OneMain Financial, the nation’s largest subprime lender. The American Financial Services Association PAC donated $2,500 the following week, as did the American Bankers Association.
Three days later, Trump administration regulators proposed a true lender rule. “After a 15-year ban, could payday lending return to North Carolina?” read the headline of a story in the statewide News and Observer on the proposed rule.
The rule was finalized in October of that year.
But because the Budd-backed rule was such an acute threat to North Carolina borrowers, that was not the end of the story.
In April 2021, Stein, North Carolina’s Attorney General, testified before the Senate Banking committee, “This rule, if not reversed, provides a get-out-of-jail-free card to predatory lenders who violate state laws limiting interest rates and fees on consumer loans.”
Stein told the stories of three people who had faced triple digit interest rates on loans during a short period between 1997 and 2001 when North Carolina allowed payday loans.
“Let me tell you briefly about Arthur Jackson (not his real name), a warehouse worker and grandfather of 7, who lives in Raleigh, N.C., went to the same Advance America payday store for over 5 years,” Stein testified. “He got a single $200 loan, that was later increased to $300. Advance America flipped the same loan over 100 times, collecting $52.50 for each transaction, while extending him no new money. He ended up paying interest of over $5,000 for the loan, fell behind on his mortgage, and had to file for bankruptcy to save his home.”
After the state’s predatory lending ban was reinstated in 2001, however, Stein testified that lenders like Advance America figured out how to bypass the law with rent-a-bank-schemes. That was only halted by state law enforcement — but as Stein noted, the new rule would have prevented those enforcement actions, and would block them in the future. “(The) True Lender Rule will upend states’ ability to protect their people,” he said. “It allows predatory lenders to avoid state rate caps by slapping the name of a national bank on the loan’s paperwork.”
Stein urged Congress to repeal the rule using the Congressional Review Act — which the newly Democratic Congress did later that spring, with President Joe Biden’s support.
