Democrats Join Republicans to Block Consumer Protections for Payday Loans

Among the many hard-won initiatives of the Obama Administration was the creation of the Consumer Finance Protection Bureau, which was championed by Senator Elizabeth Warren (D-MA). Prior to the CFPB, consumers would have to contact the financial institution to lodge complaints. The CFPB is the first federal agency that has the authority to enforce regulatory rules that are designed to protect consumers.

Since its inception, Republicans have tried to stop the agency. Unable to block its creation, the GOP-led Congress has made several attempts to curb its authority and limit its ability to function by cutting their funding. When budget cuts didn’t work, they would introduce legislation that would undercut its regulatory authority. In spite of failing at these attempts, the GOP is trying to stop the CFPB from taking on payday lenders, though this time they have some high profile Democrats on board with them.

With names such as Quick Cash, Cash America, and Check Into Cash, payday lenders provide short-term cash advances against a borrowers’ paychecks. The amounts are small, generally $500 or less, and the amount is repaid out of the borrower’s next paycheck.

The lenders charge a fee and a finance charge. On average finance fees range from $10 – $30 for every $100 borrowed. This amounts to an annual percentage rate (APR) of almost 400 percent. The payday lenders are financed through private individuals, as well as major banks like Wells Fargo and U.S. Bank.

Even with the high fees, borrowers that can pay back the loan by their next paycheck minimize the costs of the quick loan. However, the people that use payday lenders are generally unable to do so, with the industry’s own estimates that less than half of borrowers do.

It is no coincidence that payday lenders open storefronts in the poorest sections of town. These people are living paycheck to paycheck, and aren’t making enough to survive the time between. These advances are to cover basic necessities like keeping the lights on or an unexpected car repair. They don’t have the money at the time of the loan, and probably won’t be able to repay with the next paycheck. This means that they get a “rollover” loan to cover the cost of the previous one, and repay both through an installment plan.

The CFPB has no authority to regulate the interest rates, which are set by the states, so the new rules are aimed at giving borrowers protections and a better chance of paying off the loans in a reasonable amount of time. The goal is to prevent and protect against debt traps, as well as provide protection against unfair collections practices. Most importantly, they require that lenders take more responsibility in how and to whom they lend.

The proposed rules require that lenders ensure borrowers have the ability to repay the loan within a specified amount of time. They are to offer reasonable repayment plans, including one that allows the borrower to repay the loan after a certain amount of time of accruing interest.

Furthermore, they wish to limit the number of loans a borrower can receive within a 12-month period to a maximum of three, with a 60-day cooling off period between the second and third loans. Lenders are also not allowed to withdraw payments from the borrower’s checking account without permission and sufficient advance notice of when they will do so.

Analysis of the proposed rules by the PEW Charitable Trusts, a nonprofit that provides research and analysis on various public policies, found that for the most part, the rules provide a foundation for states to build stronger consumer protections. They disagree with proposals that limit how many loans consumers can make, as their research showing borrowers will limit the advances to what they actually need at the moment when they know they can borrow more later if the need arises.

PEW also thinks that the rules should go further by limiting or eliminating short-term loans, require lenders to maintain strict record keeping, and allow fees and interest rates to be refunded if the loan is paid off early.

With the finalized rules expected to be announced soon, the House GOP introduced a bill that would delay the CFPB’s rules for two years and nullify the law in any state that has a payday lending law like the one in Florida. Florida’s law does provide some limits, such as the amount and length of the loan. Nevertheless, borrowers can still find themselves paying an equivalent APR of 500 percent and it has not stopped the cycle of rollover loans, with 76 percent of borrowers in the state using them to repay previous ones.

The bill’s sponsors include Democratic representatives from Florida, the most notable being DNC Chair Rep. Debbie Wasserman Schultz (D-FL). She was part of the state legislature to create the law, and wants the CFPB to incorporate rules that more closely resemble Florida’s, which was supported by the payday lending industry. The seven Democratic sponsors include other Florida reps. Consumer groups say Florida’s law is a sham and the one proposed by Congress is equally dangerous.

Photo Credit: Alex Wong via Getty Images News

141 comments

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.2 years ago

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.2 years ago

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.2 years ago

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Siyus Copetallus
Siyus Copetallus2 years ago

Thank you for sharing.

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Sarah Hill
Sarah Hill2 years ago

Payday loan companies are predators! It was the worst thing our General Assembly did when they allowed them into our state!

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Ian Brown
Ian Brown2 years ago

I wonder how many in Congress either, have shares in payday loan companies, or are funded by them.

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Mary Deforest
Mary Deforest2 years ago

Sorry but I don't care for White House petitions for several reasons. The sign in is laborious. Change.com and Avaanz.com make it easier for me to sign in, even Selva La Salva in Spain is easier to get signed in. Next: I don't have any gaurantee that anybody looks at the WhiteHouse petitions. Next-Next-it is difficult to find a specific Whitehouse petition. I can have the specific name, and if it is against current WhiteHouse thought-all I see are closed petitions on the issue-and I give the specific name. Another reason that the Whitehouse petitions probably are useless, as it seems to be more of a way for Big Brother to spy on us. I was trying to sign petitions and campaigning for others to sign, and I was told by students, military, church people, liberal community organizers, etc that they would sign a non-governmental petition, but not sign the WhiteHouse.gov petitions.

So, the author has a viable link to a reputible petition or the author is not interested in the subject. I do not consider the WhiteHouse.gov to be reputible because of the valid points raised by others of every political ilk-left-right-gay-black-Asian-business owner-on food stamps-university students. I do sign my full name publically.

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Laurie S.
Laurie S2 years ago

And now I speak personally.

By David Y ---These "payday loan" places are basically the intestinal parasites of the financial community. Borrowing money from one of them is the financial equivalent of drinking the water from a stream in Central America. ---

That is a very apt description, I agree. Something does need to be done.

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Laurie S.
Laurie S2 years ago

I am here required by company policy to state that I work for US Bank. I am also required to state that I do not represent the bank in any media capacity and that any opinions expressed are mine alone and not those of US Bank.

You need to check your research. US Bank has not offered payday loans of any kind since the end of May of 2014, and required all existing loans to be paid or on repayment plans with installments by the end of August of 2014 for those for whom repayment at the deadline would be difficult. I still get customers calling in hoping that we will start doing payday loans again, because our rates were much lower than the average, and they are desperate, but the discontinuation is permanent.

I don't like payday loans, or how the dedicated payday loan companies hurt my customers. However, legislation on the number of loans a person can take out is not going to solve the problem, because then they will simply have no groceries or get their lights turned off. People need better financial education, and they need to earn more per hour for their work; the minimum wage needs to go up. That would start to put payday lenders out of business.

I usually don't comment on things like this, but I was unwilling to have a good and responsible company libeled, especially when the author did not bother to get any source more current than September of 2013 for an article she wrote last week.

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Brian F.
Brian F2 years ago

The DNC head needs to be terminated. Clearly Debbi Wasserman Shultz is a liar, a fraud, and con artist. It was always clear, by her unfair bias, and support of Hillary, and her corporate ties, by scheduling the debates when few would watch, that she is a crook. She should switch parties. This is why I voted for Bernie Sanders. Hillary has received 5 million from her corporate Wall Street masters, and will have to pass laws that reward their support. Bernie Sanders is the clear choice, in 2017.

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