Both the House and Senate bills include a strong new consumer financial protection agency and it will regulate them (payday lenders), one consumer advocate said.
By all accounts, Sen. Kay Hagan’s (D-N.C.) amendment to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill was an excellent one. The first-term senator had a long-standing reputation in her home state for fighting payday lending, the $42 billion a year industry that offers easy-to-get short-term loans in exchange for hefty fees and annualized percentage rates of interest in the triple digits, as high as 650 percent in some states.
[Economy1]Hagan’s amendment — the Payday Lending Limitation Act of 2010, cosponsored by Sens. Dick Durbin (D-Ill.) and Charles Schumer (D-N.Y.) — capped the number of times a customer could get a payday loan to six per year. It also required payday lenders to offer borrowers extended repayment plans, letting them pay back their loans in smaller installments over longer periods of time. Payday loans are advertised as emergency stop-gap measures to help customers with sudden expenses. But the average payday loan rolls over between eight and 12 times. And more than 60 percent of payday loans go to borrowers that use them 12 times or more per year.
To illustrate how bad payday loans sometimes got, Hagan told the story of one of her constituents, Sandra Harris from Wilmington. “She had a job at Head Start and always paid her bills on time,” Hagan said on the Senate floor. “When her husband lost his job, Sandra got a $200 payday loan to pay the couple’s car insurance. When she went to repay the loan, she was told she could renew. Sandra ultimately found herself indebted to six different payday lenders, and paid some $8,000 in fees.”
Hagan’s amendment, without banning the financial service, would have stopped the industry’s worst practices — but also its most lucrative practices. Payday lenders make 90 percent of their business from repeat users. If payday loans were capped at six per customer per year, payday lenders could see their business fall by a third or half. Thus, the industry lobbied hard against Hagan’s proposal, as it had done against financial reform in both houses all year — spending $6.1 million on lobbying in 2009, more than double what it did in 2008.
The lobbying effort employed everyone from the grassroots — individual customers — to the highest-powered lawyers. David Lazarus of the Los Angeles Times reported that as Hagan’s amendment came up for a vote in Congress last week, one payday lender instructed his employees, “After a customer repays their loan, the customer then asks for a new loan. TELL YOUR CUSTOMER THAT YOU CAN’T LOAN TO THEM BECAUSE THE GOVERNMENT HAS PUT US OUT OF BUSINESS. That will get their attention. Then ask them to write letters or call their senator/congressman.” A flurry of letters written at check cashers or payday loan shops showed up in Congress.
On May 20, Hagan’s amendment came up in the Senate. Durbin stood up in support, calling payday lenders the “bottom feeders” of the financial industry. Then, as Dodd moved to proceed, Sen. Richard Shelby (R-Ala.) — who in 2009 received more campaign donations from payday lenders than any other Senator — blocked unanimous consent to vote on the popular provision. (Shelby’s office did not respond to repeated requests for comment.) It died on the floor.
Hagan’s was the last of many such payday-lender-specific provisions to come up in the regulatory reform process. And it was the last to fail. There are no interest-rate or rollover caps in the Senate bill. And there are none in the House either.
Durbin argued for capping the maximum annualized percentage rate of interest a payday lender could charge at 36 percent, for instance, a measure supported by the Center for Responsible Lending and other consumer groups. It never made it into the bill, nor did Rep. Jackie Speier’s (D-Calif.) version in the House. Rep. Luis Gutierrez (D-Ill.) — who has in the past advocated effectively banning payday lending — sponsored the Payday Loan Act of 2009, a series of reforms attached to the House bill. Consumer reform groups blasted the measures, which capped annualized percentage rates of interest at 391 percent. But even those very modest reforms did not make it in. And the most notable payday lender victory might have come from the work of Sen. Bob Corker (R-Tenn.), who reportedly lobbied for and won a loosening of the Consumer Financial Protection agency’s oversight over small payday lenders.
One might think this would have consumer advocates incensed about the House and Senate bills’ ability to stop the worst practices in the payday lending industry. But, in fact, they argue that payday lenders spent millions to win numerous battles before ultimately losing the war.
Why? Payday lenders in both bills still come entirely under the rule-making authority and oversight of the new Consumer Financial Protection Agency, which consumer advocates are confident will consider tamping down on annualized percentage rates of interest and establishing rollover limits. There has been considerable confusion over the Senate’s payday lending language and possible loopholes. It ensures the Consumer Financial Protection Agency has oversight and rule-making authority over all payday lenders, with the CFPA enforcing rules against bigger lenders and the Federal Trade Commission enforcing rules against smaller lenders, Kirstin Brost of the Senate Banking Committee said. And the House language, simply having the CFPA have total authority over all payday businesses, as supported by the White House and Treasury, is likely to win out.
“In the end, it doesn’t matter much that Congress didn’t specifically regulate payday lenders,” Ed Mierzwinski, the consumer program director at the U.S. Public Interest Research Group explains. “For the payday lenders to call the defeat of the Hagan a win for them is a Pyrrhic victory — because both both the House and Senate bills include a strong new consumer financial protection agency and it will regulate them.”
And Kathleen Day, the spokesperson for the Center for Responsible Lending, which worked with Senators on crafting payday lending restrictions and has fought a longtime and vocal fight against the businesses, concurs. “The [CFPA] will be able to enact strong consumer protections that would apply to payday lenders. As long as those protections are in there, that’s the name of the game,” she says. “There’s going to be people that say they want to be specific, they want to have specific provisions in this law about payday lending. But the great thing about having this agency is that it will have broad overview to write fair laws and to make sure laws are fair.
“Of course, we’d love to have a 36 percent [annualized percentage rate of interest] cap. But that’s unlikely. And sometimes regulations can be too specific. We are confident [the CFPA] will be able to react to the market in a flexible, consumer-focused way.”
Indeed, behind the scenes, payday lenders — much like auto dealers who make car loans — fought hardest for an exemption from CFPA authority. That battle, they spent millions to lose. And it means that consumers might win down the road.
Giffords shooting leads nation to introspection and political finger wagging
In the wake of the shooting in Arizona this weekend that critically injured Rep.
EPA Administrator Addresses Concerns About Oil Spill Waste Management
At a hearing of the national oil spill commission today, Environmental Protection Agency Administrator Lisa Jackson addressed concerns about waste disposal from
E-Verify Mandate Begins Today
The Obama administration today begins implementation of a new mandate to require all federal contractors to check the legal status of their employees to confirm
EPA administrator defends allowing Florida to write its own water pollution rules
The EPA seal (Pic via sentryjournal.com) The Environmental Protection Agency has come under fire for its decision to allow the state of Florida to write its own water pollution rules (known as “numeric nutrient criteria”). EPA Regional Administrator Gwendolyn Keyes Fleming is now firing back, writing that the Agency commends the state Department of Environmental Protection for its draft of a proposed standard. A host of environmental groups filed suit in 2008, seeking to compel the EPA to implement a strict set of water pollution standards in Florida, arguing that the state was in violation of the Clean Water Act.
EPA administrator fires back at critics in op-ed
EPA Administrator Lisa Jackson (Pic by USACEpublicaffairs, via Flickr) EPA Administrator Lisa Jackson penned a new op-ed for the Los Angeles Times , criticizing House Republicans desperately seeking to undermine the authority of the agency they have dubbed a “job killer.” Arguing that the environment affects red states and blue states alike, Jackson writes that “it is time for House Republicans to stop politicizing our air and water.” As head of the Environmental Protection Agency, Jackson has faced harsh criticism from House Republicans and GOP presidential candidates who say the agency’s regulations are an undue burden on businesses that have to cut jobs simply to comply with clean water and air rules. Presidential hopeful Michele Bachmann has pledged to end the EPA if she takes office. “Since the beginning of this year, Republicans in the House have averaged roughly a vote every day the chamber has been in session to undermine the Environmental Protection Agency and our nation’s environmental laws,” writes Jackson.
EPA administrator says federal nutrient criteria is a ‘myth’
In testimony given late last week, EPA Administrator Lisa Jackson said that false accusations about her agency’s numeric nutrient criteria to govern Florida waterways are proving to be a detriment to their implementation. # Testifying before the House Agriculture Committee, Jackson said her agency’s work was often “mischaracterized” and addressed several myths surrounding its work
EPA announces hold on nutrient standards if Florida can come up with own criteria
The EPA announced today that it is now prepared to withdraw a portion of its proposed numeric nutrient criteria (a set of standards governing water pollution in inland waters) and delay the portion related to estuarine waters, to allow the state Department of Environmental Protection to develop its own criteria. # From a statement released by the EPA earlier today: # EPA recognizes that states have the primary role in establishing and implementing water quality standards for their waters. Therefore, EPA is prepared to withdraw the federal inland standards and delay the estuarine standards if FDEP adopts, and EPA approves, their own protective and scientifically sound numeric standards
EPA Analysis Says Climate Bill’s Cost for Households Would Be ‘Modest’
All the attention on the energy front today is going to the BP spill, but the Environmental Protection Agency quietly released its long-anticipated analysis of
EPA and California Near Deal on Fuel Efficiency Standards
Two weeks ago, the Obama administration raised fuel efficiency standards by an average of two miles per gallon -- a modest change that disappointed some