Consumer Confidential: Why is a group of lawmakers working to undermine tighter rules for the payday-loan industry?
Sun., March 13, 2016
In a bizarre display of bipartisan cooperation, a handful of Democratic lawmakers have joined Republicans in trying to cripple the Consumer Financial Protection Bureau.
The question is: Why?
Most notably, Florida Rep. Debbie Wasserman Schultz, who also serves as chairwoman of the Democratic National Committee, is co-sponsoring the deceptively titled Consumer Protection and Choice Act, which would undermine the watchdog agency’s pending efforts to rein in predatory lending.
The bill would delay federal regulations for payday lenders by two years. It also would allow states to adopt more lenient rules for the industry.
Wasserman Schultz is joined by eight other Democrats in co-sponsoring the legislation alongside twice as many Republicans.
Weakening – or even better, shutting down – the Consumer Financial Protection Bureau has been high on Republicans’ to-do list since the agency was created as part of the financial reform law passed in 2010. The law was a response to the mortgage meltdown that nearly plunged the world into a second Great Depression.
Critics of the bureau say it has too much power and that it places too heavy a regulatory burden on businesses. Supporters counter that if financial firms keep their noses clean, they have nothing to worry about.
“The bureau is effective precisely because it is an agency whose sole job is to look out for the best interests of consumers,” said Emily Rusch, executive director of the California Public Interest Research Group. “No one should have to pay triple-digit interest rates on a loan.”
The bureau has made no secret of its interest in establishing rules to safeguard consumers from being trapped by payday lenders in endless cycles of high-interest debt.
Under preliminary requirements unveiled last year, lenders would have to determine upfront if a borrower can repay the loan. They’d also face limits on how often the same borrower can be lent money. The bureau hopes to have final rules in place by the end of this year.
“Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay,” said Richard Cordray, the head of the agency. “These common-sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.”
So why would Democratic lawmakers, who have been at the forefront of financial reform efforts, link hands with Republicans in watering down such protections?
Wasserman Schultz was unavailable to answer that question. But her spokesman, Sean Bartlett, said the legislation “is about preserving the shared goal of implementing strong consumer protections while also preserving access to affordable lending for low-income communities.”
Or maybe it’s more about money.
Florida’s representatives, from both parties, have been the primary backers of the Consumer Protection and Choice Act since its introduction last November, and most of them are up to their necks in donations from the payday-loan industry.
The bill was introduced by Florida Rep. Dennis A. Ross, a Republican. He’s received $25,850 from payday lenders over the years, according to a database of campaign contributions compiled by the Center for Responsive Politics.
The same day Ross submitted the bill, five other Florida lawmakers – each one a recipient of payday-loan cash – piled on as co-sponsors. They included Rep. Alcee Hastings, a Democrat, who has received $107,500 in donations from payday lenders, and Rep. Patrick Murphy, also a Democrat, who has received $46,000.
Wasserman Schultz climbed aboard in December. She’s pocketed $63,000 in contributions from payday lenders, according to the database.
Bartlett said Wasserman Schultz “wholeheartedly believes in” the goals of the Consumer Financial Protection Bureau. However, she and her Florida compatriots think the bureau should use Florida’s existing payday-loan law “as a benchmark for other states.”
Barring that, apparently, the backers of the legislation want to ensure that Florida’s law – and similar laws in other states – aren’t superseded by stricter national rules.
The payday-loan industry would like that. Florida’s law has relatively lax standards and no requirement that payday lenders check in advance to make sure borrowers can repay loans in full without becoming mired in perpetual indebtedness.
There are few limits on how many loans a Floridian can receive. People in the state who use payday loans take out an average of nine loans a year, according to the Center for Responsible Lending.
The average loan is $250 with an annual interest rate of 312 percent. Most borrowers take out a new loan as soon as the previous one is paid off, the center found.
“The law isn’t perfect, no law is, but it’s made a strong difference for Florida consumers,” Bartlett said.
California law limits payday loans to $300 and requires that a loan be paid off before another loan can be made. However, there’s no requirement that lenders be accountable for borrowers’ ability to make payments.
As for the $63,000 given to Wasserman Schultz by the payday-loan industry, Bartlett said that “the congresswoman’s political donations had nothing to do with her policy positions or voting record.”
I’d find that a lot more believable if the Consumer Protection and Choice Act wasn’t so transparent in having nothing to do with consumer protection and little if anything to do with choice.
It’s a shameless effort by the payday-loan industry, acting through congressional proxies, to avoid federal rules that would require more responsible behavior. The only choice it offers consumers is the ability to keep taking out high-interest loans even if it’s clear they can’t make payments.
More than 250 consumer, civil-rights and other advocacy groups have submitted a letter to Congress calling on lawmakers to vote down the legislation.
The bill, they said, “is not an effort to reform the payday loan market – it is an attempt to codify industry-backed practices that do little to protect consumers.”
“Low-income consumers deserve strong protections and timely action,” the groups said.
Cordray, the bureau director, was correct when he called the proposed federal rules “common-sense protections.” They wouldn’t prevent lenders from doing business, nor would they prevent qualified borrowers from receiving funds.
What these rules would do is ensure that payday lenders nationwide play a reasonable role in preventing consumers from taking on more debt than they can handle.
It’s astonishing that any lawmaker, not least the head of the Democratic National Committee, would oppose that.
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