Payday lenders try legislative run around state laws, CFPB regulation

If the bill is enacted, states that have annually saved an estimated $2.2 billion each year by banning triple-digit interest would have to face the return of past debt trap lending. Additionally, and in 34 states where a $2,000, 2-year installment loan with interest higher than 36 percent is illegal today, would enable predatory lenders to charged unlimited rates on these longer-term loans.
One more item to note – these measures are advancing with bipartisan support.
Virginia’s Senator Mark Warner, the lead sponsor of that chamber’s version has Senators Gary Peters (Michigan), Pat Toomey (Pennsylvania) and Steve Daines (Montana) as his co-sponsors. On the House side, Rep. Patrick McHenry from North Carolina, has the help of two Congressional Black Caucus (CBC) members, New York’s Congressman Greg Meeks and Wisconsin’s Congresswoman Gwen Moore.
Right now, both New York and Pennsylvania have rate caps prevent triple-digit rate lending. It is therefore curious why bill co-sponsors would strip their own state law protections. In other home states of these legislators, payday loan interest rates are some of the highest in the country. For example, in Wisconsin the average payday interest rate is 574 percent; in Michigan, the average interest is 369 percent. This bill would expand this type of predatory lending in their states, rather than reining it in.
On Nov. 15, the House bill passed out of its assigned committee with a split among CBC members serving on the House Financial Services. While Representatives Maxine Waters (California), Al Green (Texas), and Keith Ellison (Minnesota) opposed the bill, Lacy Clay and Emanuel Cleaver (both of Missouri), joined Meeks and Moore in its support.
It is noteworthy that in Missouri, the average payday loan interest rate is 443 percent.
For civil rights advocates, the committee vote was disturbing.
“The potential costs and damage to consumers is significant, especially for borrowers of color, as research shows that payday lenders disproportionately target communities of color and trap consumers in unsustainable cycles of borrowing and reborrowing high-cost loans,” said Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights. “Under these arrangements, banks effectively ‘rent’ their federal charter powers to non-banks lenders, in exchange for a fee associated with each loan.”
“The swarm of payday lenders in our communities is blocking access to responsible credit and lending options, which have found that they cannot compete with such deep pockets and market penetration,” noted Hilary O. Shelton, director of the NAACP’s Washington Bureau and Senior Vice President for Policy and Advocacy. “Responsible banking policy would be acting to end these high-cost loans, not make them more common.”
The concerns of civil rights leaders are also shared by a nationwide coalition of 152 national and state organizations who together advised all of Congress of their collective opposition. Coalition members include church conferences and affiliates, consumer groups, housing, labor, legal advocates and others. Approximately 20 state attorneys general are also on record opposing the bill’s provision.
“This bill represents the efforts of high-cost lenders to circumvent the most effective protection against predatory loans—state interest rate caps,” said Scott Estrada, Director of Federal Advocacy with the Center for Responsible Lending. “Rather than making it easier for predatory lenders to exploit financially distressed individuals, Congress should be establishing a federal rate cap of 36 percent that protects all Americans, just as it did in 2006 for members of the military at the urging of the Department of Defense.”
(Charlene Crowell is the communications deputy director with the Center for Responsible Lending. She can be reached at
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