“If at first you don’t succeed, try, try again” is a well-known adage. Over the past few weeks, it seems that this phrase could also be an apt description of the relentless efforts of predatory payday lenders to sell their wares.
Across the country, 15 states as well as the District of Columbia, with different geographies, economies, and demographics, have adopted strong cap rate limits. In every locality, these measures have been taken to limit the adverse consequences of loans with interest rates of 300% or more from payday lenders.
When voters or legislatures approve rate caps, these lenders look for loopholes to evade state demands. Changing payday loan proceeds to car title loans is one way. Others pose as “loan brokers” or “mortgage lenders” to avoid payday lending regulation. Even at the federal level and following a still new rule from the Consumer Financial Protection Bureau (CFPB), payday lenders and their supporters are now pushing for the legislation to continue and extend triple-digit loans on low-level loans. amount.
The same deception that hides the true cost of predatory consumer loans is reflected in the title of pending legislation in both the House of Representatives and the Senate. Protecting Consumer Access to Credit Act 2017 (HR 3299 and S. 1624) would allow payday lenders, high-cost online lenders and other predatory lenders to partner with banks to grant loans in excess of existing interest rate limits. This legislative scheme would legalize payday lenders to charge triple-digit interest rates, despite state laws prohibiting them.
Some refer to this innovative financial shift as “fintech,” a recently coined term reminiscent of the technological direction of the 21st century, but on a daily basis, these actions are a renewed effort for an old program known as “rent-a.” -bank ”.
If the bill is enacted, states that have saved an estimated $ 2.2 billion annually by banning triple-digit interest would face the return of debt trap loans. Additionally, and in 34 states where a 2-year, $ 2,000 installment loan with interest above 36% is illegal today, would allow predatory lenders to charge unlimited rates on these longer-term loans.
One more thing to note: these measures are moving forward with bipartisan support.
Virginia Senator Mark Warner, the main sponsor of this chamber version, has Senators Gary Peters (Michigan), Pat Toomey (Pennsylvania) and Steve Daines (Montana) as co-sponsors. On the House side, Rep. Patrick McHenry from North Carolina, assisted by two members of the Congressional Black Caucus (CBC), New York Congressman Greg Meeks and Wisconsin Congresswoman Gwen Moore.
Currently, New York State and Pennsylvania have ceiling rates that prevent triple-digit lending. So it’s curious why the co-sponsors of the bill would remove their own protections from state law. In other home states of these lawmakers, payday loan interest rates are among the highest in the country. For example, in Wisconsin, the average payday interest rate is 574%; in Michigan, the average interest is 369%. This bill would extend this type of predatory lending to their states, rather than curb it.
On November 15, the House bill was passed by its assigned committee, with a split between CBC members sitting on House Financial Services. While Representatives Maxine Waters (California), Al Green (Texas) and Keith Ellison (Minnesota) opposed the bill, Lacy Clay and Emanuel Cleaver (both from Missouri) joined Meeks and Moore in his support.
It should be noted that in Missouri, the average interest rate for payday loans is 443%.
For civil rights activists, the committee’s vote was worrying.
“The potential costs and harm to consumers are significant, especially for borrowers of color, as research shows payday lenders disproportionately target communities of color and trap consumers in unsustainable borrowing cycles. and high cost loan re-borrowing, ”said Vanita Gupta, President. and CEO of The Leadership Conference on Civil and Human Rights. “Under these deals, banks ‘lease’ their federal charter powers to non-bank lenders, in exchange for a fee associated with each loan. “
Hilary O. Shelton, director of the NAACP Washington office and senior vice president for policy and advocacy, said the swarm of payday lenders in our communities is blocking access to credit and responsible lending options ; companies that offer these options cannot compete with the deep pockets and market penetration of payday lenders, Shelton added.
“Responsible banking policy would be to end these high-cost loans, not to make them more common,” Shelton said.
The concerns of civil rights leaders are also shared by a national coalition of 152 national and state organizations which together have informed Congress as a whole of their collective opposition. Coalition members include church and affiliate conferences, consumer groups, housing, labor, lawyers, and others. About 20 state attorneys general also formally oppose the provision of the bill.
“This bill represents the efforts of high-cost lenders to bypass the most effective protection against predatory loans – state interest rate caps,” said Scott Estrada, director of Federal Advocacy at the Center for Responsible Lending . “Rather than making it easier for predatory lenders to exploit people in financial difficulty, Congress should set a 36% federal rate cap that protects all Americans, just as it did in 2006 for members of the United States. the army at the request of the Ministry of Defense. . “
Charlene Crowell is Associate Director of Communications at the Center for Responsible Lending. She can be contacted at [email protected] Follow the Center on Twitter @crlonline.