Losing Ground in States, Payday Lenders Take Fight to Congress

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Thursday, October 08, 2009 at 6:10 am
Flickr: Stallio

Flickr: Stallio

The payday lending industry, stung by losses in states that either refused to authorize their high-rate, short-term loans or moved to limit finance charges, isn’t giving up without a fight.

Payday lenders are out in full force in Wisconsin, where a legislative battle is underway over efforts to impose a 36 percent rate cap on payday loans, a move the industry claims will put it out of business. The next big battleground state will be Colorado, where payday lenders already are making financial contributions to minority groups to win favor, in anticipation of an upcoming legislative fight over payday reform. And in Washington, D.C., payday lenders have sharply increased their Capitol Hill spending and profile at a time when other types of political fundraising is on the decline, hoping to dissuade Congress from imposing any additional federal limits on the industry. Payday lenders also wary of a new Consumer Financial Protection Agency, which would have oversight of mortgages and other financial instruments, even though proposals don’t specifically single out payday lending.

Illustration by: Matt Mahurin

Illustration by: Matt Mahurin

“Obviously, the industry has gotten its hat handed to it at the state level, and it appears to be spending a lot of time and money trying to win friends and influence people on the Hill,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

Not a single state has authorized payday lending since Michigan did so in 2005, Fox said. The last payday lender shut down and left Arkansas in August, not long after a crackdown by the state Attorney General. Voters in Arizona and Ohio last year approved rate caps on payday loans, despite aggressive opposition from the industry. In 2007, the District of Columbia approved a 36 percent rate cap, after a heated fight. The decisions have shifted the momentum in the payday lending battle, given that prior to the financial crisis, the industry regularly won victories at the state level to authorize their lending with no limits.

But payday lenders are gearing up for an alternative strategy. The industry believes it has found new support in arguing that payday loans, with annual interest rates that can reach 400 percent, are a cheaper alternative to overdraft charges. The industry is citing a recent USA Today analysis based on data from Moebs Services, an economic research firm. According to the analysis, consumers pay an overdraft fee of $26.68 every time they overdraw their account. So if consumers overdraw by $100, they’d pay an annual percentage rate (APR) of 696%, if the credit is paid back in two weeks – compared with an APR of 450% on a $100 payday loan with an average fee of $17.25, according to USA Today.

“The focus on overdraft protection on the Hill has helped legislators to understand that payday lending can be looked at as a cheaper alternative to overdraft charges,” said Steven Schlein, a spokesman for the Community Financial Services Association, the trade group for payday lenders.

Consumer advocates say that’s not necessarily true – and that neither of those high-cost options is a good one. Regardless, the industry has the money to get its message and arguments out in Washington. It doubled its lobbying expenditures in the last two years years to more than $4 million, according to the Center for Responsibility and Ethics in Washington. Top recipients of payday lending money in the 2008 campaign cycle include such influential lawmakers as Sen. Tim Johnson (D-S.D.), Rep. Luis Gutierrez (D-Ill.), who reversed his support for a payday lending ban and sponsored much weaker reforms after accepting substantial contributions from the industry, and Sen. Richard Shelby (R-Ala.).

“It’s not that many dollars, especially compared to other groups, but what’s striking is how much more the payday lending industry is spending than it used to,” said Naomi Seligman, a CREW spokesperson.

D. Lynn DeVault, board chair of the Community Financial Services Association, recently told Checklist, a trade publication for check cashing stores and payday lenders, that the industry is pouring its resources into Capitol Hill, increasing its federal lobbying budget by four times this year alone to fight off more than 14 bills in the House and Senate that affect payday lending. The group strongly opposes a measure that would cap rates on all consumer loans at 36 percent, co-sponsored by Sen. Richard Durbin, D-Ill. It even still dislikes the weaker bill sponsored by Gutierrez, who said in July that he would no longer accept industry contributions. Schlein said payday lenders will oppose in principle any payday reforms coming from Washington, contending that states should handle the issue.

DeVault said the group’s increased lobbying spending represents some 60 percent of its total budget, forcing it to cut back on consumer education and community outreach programs.

“We’re cutting back everywhere so we can put our resources behind this federal effort,” she told Checklist.

For that reason, Fox, of the Consumer Federation of America, doesn’t consider the payday lending fight anywhere near over, despite recent successes, including the 36 percent rate cap on payday loans to military personnel imposed by Congress in 2006.

“It’s always a concern,” she said. “Families burned by payday lenders don’t have the same Gucci Gulch ability to take on Congress.”

The industry’s efforts to fend off pending regulation in Washington are a twist on the tactics of financial services firms during the subprime boom. After lobbying from the lending industry, the Office of the Comptroller of the Currency in 2004 exempted banks and mortgage companies from tough state anti-predatory lending laws.

In states still facing payday reform fights, intense battles are underway.

In  Wisconsin, payday lenders have recruited 29 lobbyists for various payday reform proposals – the most lobbyists hired for a single issue in recent memory, said Gordon Hintz, D-Oshkosh, sponsor of the bill to impose a rate cap. Payday lenders also were the No. 1 campaign contributor during the first reporting period of this year, he said. Along with Hintz’s bill, other measures are being proposed in Wisconsin that would benefit payday lenders with lesser reforms, and have the industry’s support. Wisconsin is one of the last states without an interest rate limit on payday loans.

“It’s a gold mine here right now,” Hintz said, noting that even campaign consultants who helped get him elected have been lured to the opposition’s side. “I had no idea I’d be getting into something like this.”

As a result, it’s the “Mother Teresa coalition” of groups like the Catholic Conference and other nonprofits that support payday limits, up against the money and clout of payday lenders, Hintz said. “There is no interest group for people who were taken advantage of by payday lenders,” he said.

Hintz also said it was his understanding that payday lenders were tired of losing in other states, and as a result planned a major campaign in Wisconsin. Lawmakers are expected to consider payday lending reform proposals before the end of the year, he said.

In Colorado, the payday lending industry has been busy raising its profile and contributing to minority groups and events, said Matt Sundeen, senior policy analyst and general counsel with The Bell Policy Center, a nonprofit, nonpartisan research group.

Last month, former Denver Bronco Willie Green, director of corporate development and community outreach for the payday lender Advance America, presented the Urban League of Metropolitan Denver with a $10,000 contribution on behalf of his employer. Payday lender Moneytree for the first time sponsored the annual El Grito 5k run/walk, a major event for the Hispanic community.

Despite the industry’s financial clout, Sundeen said consumer advocates in Colorado are encouraged by the defeat of payday lenders in other states, where the industry far outspent opponents.”Clearly, they are very active in our state as well,” Sundeen said. “But we hope in 2010 we’ll be able to take care of payday legislation.”

It may not be that simple. In Ohio, where voters approved a 28 percent rate cap on payday loans last year, payday lenders are working to circumvent the law by continuing to make payday loans under two older consumer loan laws still on the books, said David Rothstein, a researcher with nonpartisan Policy Matters Ohio. “Those laws were never meant for payday loans,” he said. “The payday lenders are certainly doing everything they can” to continue making loans, he said.

Schlein, the industry spokesman, said payday lenders are keeping up the fight in Ohio, and will keep spending money in states where payday reforms are being considered. They also will work in Washington to prevent lawmakers from trying to put any limits on payday loans. “We always are going to fight hard,” he said.

Which means the battle over high-rate, short-term loans to people in financial distress won’t be over anytime soon.

Comments

28 Comments

That’s right, we’re fighting
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[...] Random Feed wrote an interesting post today onHere’s a quick excerptFlickr: Stallio The payday lending industry, stung by losses in states that either refused to authorize their high-rate, short-term loans or moved to limit finance charges, isn’t giving up without a fight. Payday lenders are out in full force in Wisconsin, where a legislative battle is underway over efforts to impose a 36 percent rate cap on payday loans, a move the industry claims will put it out of business. The next big battleground state will be Colorado, where payday lenders already [...]


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[...] News Sources wrote an interesting post today onHere’s a quick excerptFlickr: Stallio The payday lending industry, stung by losses in states that either refused to authorize their high-rate, short-term loans or moved to limit finance charges, isn’t giving up without a fight. Payday lenders are out in full force in Wisconsin, where a legislative battle is underway over efforts to impose a 36 percent rate cap on payday loans, a move the industry claims will put it out of business. The next big battleground state will be Colorado, where payday lenders already [...]


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DossyDomo
Comment posted October 8, 2009 @ 12:00 pm

These companies are all THIEVES and should be put out of business. They thrive on the misery of those who can least afford it!

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ryan458
Comment posted October 8, 2009 @ 1:36 pm

Can you blame payday lenders for upping their lobbying efforts? That's what you do when you are under attack by lawmakers. Look at how much lobbying dollars is being pumped into this health care fight. The payday loan lobbying dollars is a drop of water in the ocean compared to that.

The other thing that bothers me is the apparent consumer demand for payday loans. Consumers apparently love the product. There wouldn't be a booming payday loan business otherwise. The only ones who do not like it are so-called consumer advocates. No one forces anyone to use payday loans. It's a personal choice, and is cheaper than bouncing a check.

What happens when all these “advocates” ban the loans? Where do people go for short-term credit then? They will pay more for other fees and that's a far worse option.


strangely_enough
Comment posted October 8, 2009 @ 3:37 pm

Why do people say “love” when they mean “need”? I don't see anyone trying to ban payday loans as much as limiting their usurious practices.


COACHEP » Blog Archive » Posts about Stop Cap and Trade as of October 8, 2009
Pingback posted October 8, 2009 @ 5:28 pm

[...] year alone to fight off more than 14 bills in the House and Senate that affect payday lending. Losing Ground in States, Payday Lenders Take Fight to Congress – washingtonindependent.com 10/08/2009 Flickr: Stallio The payday lending industry, stung by losses [...]


Jon_Schultz
Comment posted October 8, 2009 @ 4:51 pm

You cannot trust statistics enunciated by the Center for Responsible Lending. They have repeatedly shown that they have no respect for fairness and honesty. They are still circulating the bogus “fact” that the average payday loan customers ends up repaying $793 for a $325 loan, which they arrive at by totalling up the amount of fees that the average payday loan customer pays in a year, on a number of different loans, and calling that repayment for one loan. Why? Because they continue to be obsessed with the ANNUAL percentage rate, despite the fact that the APR is nothing but a hypothetical extrapolation which becomes increasingly less important as a loan has a shorter term. Even the nonprofit payday loan “alternative” offered as a public service by Goodwill Industries carries a 252% APR.

You have to remember that payday lenders lend money to people whom nobody will lend to, due to their poor credit rating, and must make the loan short-term – with the borrower's paycheck as collateral – so they do not lose their shirt. The most important statistic is customer satisfaction surveys, which show that a large majority of payday loan customers are satisfied and consider the service to be a valuable financial option.

Yes, some payday loan customers borrow more than they can afford to and get themselves into a bind, but assuming there has been no deception in the presentation of the loan, that is no more the lender's fault than ice cream manufacturers and retailers are responsible for the obesity of those people who eat too much ice cream. Of course it is easy to find people who will say that they have been taken advantage of so as to seem justified in not paying back a loan.

And if lenders are “responsible” for ensuring that borrowers can afford their loans, then why shouldn't other merchants and service providers also be? Before long you won't be able to buy anything without the merchant or service provider being required to investigate your finances to determine if, in the government's opinion, you are making a wise decision. Is that the kind of world you want to live in?

A little open-mindedness on this issue would be much appreciated.


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SpacelySpaceSprockets
Comment posted October 9, 2009 @ 6:28 pm

Ha, you sound like you own or lobby for PayDay loan sharks. Try being less transparent next time.


Scott Johnson
Comment posted October 10, 2009 @ 5:27 am

I prefer using my local bookie/coke-dealer as a loan shark – worst he'll do is send some crazy bastard to bust my kneecaps.


PaydayLendingRep
Comment posted October 13, 2009 @ 2:13 pm

There are efforts to cap the annual interest rates on payday loans at 36% APR. While this sounds reasonable, payday loans are two-week loans and cannot be offered at the same APRs as annual credit products. At a 36% APR, the total fee charged on a $100, two-week advance would be $1.38. Payday advance lenders could not cover the cost of originating a loan, let alone meeting employee payroll and benefits and other fixed business expenses.

For example, Goodwill, a non-profit, tax-exempt charity, charges customers almost $10 per $100 borrowed (i.e., 252% APR) for their “Good Money” payday loan. Even though they are only trying to break even, the Goodwill could not offer the product under a 36% rate cap. For-profit payday lenders typically charge $15 per $100 borrowed while also paying taxes, employee salaries and health care, rent and overhead costs. The $5 more they need to break even, pay taxes, make a profit and keep their businesses running makes sense for borrowers, employees and the tax coffers.
Eliminating payday loans as an option does not eliminate the need for short-term credit. Instead it forces consumers to choose between more expensive alternatives such as fees for bounced checks, overdraft protection, or late bill payments or even unregulated off-shore Internet lenders.


SPECOPS
Comment posted October 13, 2009 @ 3:54 pm

You would be better off going to qa loan shark


Name
Comment posted October 14, 2009 @ 3:19 pm

Payday loans are accessed by 19 million Americans each year because they offer significant cost savings versus:
· The avg. $27-plus-interest fee on a bank overdraft (APR 704%)
· The avg. $29 fee on a late credit card payment (APR 757%)
· $51 in NSF and merchant fees on a $100 payment (APR 1329%)
· A $50 late/reconnect fee on a $100 utility bill (APR 1303%)

In addition to being more expensive, these options negatively impact credit ratings and may hurt a consumer’s access to employment, housing, insurance and other credit options.

The Federal Reserve Bank of New York in a January 2007 report found that payday loans are NOT predatory, and – by supplying credit where otherwise there would be none – they actually enhance the welfare of the households they serve.

Other studies have found:
· Households are better off with access to payday loans
· Bans on payday loans hurt consumers by increasing not only the cost of credit, but also instances of bounced check fees and personal bankruptcies
· Payday loan customers understand the fees associated with the product, appreciate having access to credit where otherwise there would be none, and use the product responsibly, as a short-term solution to unexpected and urgent expenses

So, payday loan borrowers are often making reasonable choices to proactively manage their finances in the face of more-onerous circumstances. They certainly don't need ivory-tower politicians, over-zealous editors or so-called “consumer advocates” limiting their financial choices.

Let's give consumers access to well-regulated credit options and let them choose which ones are best for them and their families.


kali
Comment posted October 17, 2009 @ 6:50 pm

this is so outrageous.. this reads almost as a who-can-rip-off-poor-people-the-more… so banks rip poor people off by more money than we do, so we should be allowed to continue our loan-sharking practices.. these folks should be simply be ASHAMED of what they do.. I simply cannot believe they think a cap of 36 pct interest rate would be too onerous to them.. ah yes.. only in America… I'm sure none of this nonsense would be tolerated in any other modern democracy in the world (but well, anyway, no other modern democracy in the world has the poverty rates that we, the “most advanced country in the world” have…)


jkursman
Comment posted October 19, 2009 @ 4:44 pm

Families need access to short-term credit! This fact is undisputed.So let's examine the options…Payday loans are accessed by 19 million Americans each year because they offer significant cost savings versus: · The avg. $27-plus-interest fee on a bank overdraft (APR 704%) · The avg. $29 fee on a late credit card payment (APR 757%) · $51 in NSF and merchant fees on a $100 payment (APR 1329%) · A $50 late/reconnect fee on a $100 utility bill (APR 1303%) The Federal Reserve Bank of New York in a January 2007 report found that payday loans are NOT predatory, and – by supplying credit where otherwise there would be none – they actually enhance the welfare of the households they serve. Other studies have found: · Households are better off with access to payday loans · Bans on payday loans hurt consumers by increasing not only the cost of credit, but also instances of bounced check fees and personal bankruptcies · Payday loan customers understand the comparative fees associated with financial productsLet's allow Washington consumers choose the credit products that make the most financial sense for their families rather than newspaper editors or so-called “consumer advocates” with their own political and financial agendas.


bendjamin
Comment posted October 26, 2009 @ 6:12 pm

No one forces those people to seek loans at these rates. If these people are charging rates that these people don’t know about (they’re hiding or not disclosing them), there are already laws on the books to allow prosecution. Whether we’re conscious of it or not, unless we’re coerced, every decision we make, we’ve already come to the conclusion that we’re better off with the decison that we would be had we not made it.


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Comment posted April 2, 2010 @ 11:10 am

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The best thing to do is save up $500 or $1000 in a piggybank if you have trouble qualifying for an unsecured credit card or personal installment from a bank or credit union.


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Comment posted August 4, 2010 @ 2:28 am

In addition to being more expensive, these options negatively impact credit ratings and may hurt a consumer’s access to employment, housing, insurance and other credit options.


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