Chicago – As
states across the country put strong restrictions on payday loans, including
rate caps and restrictions on abusive refinancing, a new bill
introduced by Rep. Luis Gutierrez (D-IL) and currently being debated by
Congress would undermine consumer protection efforts by permitting triple digit
interest rates and offering troubled borrowers only an insufficient repayment
plan to break the cycle of debt.
Payday
loans present a serious threat to the financial stability of Illinoisans and
millions of people across the country,” said Dory Rand, Woodstock Institute
president. “We need federal support to
prevent the proliferation of payday loans, not a reform measure designed to
legitimize the product at the national level.”
Woodstock
Institute, a fair lending and asset building advocate, strongly opposes the
bill for failing to protect consumers.
Its review of the bill found only two measured consumer two protections,
a modest fee cap and an optional repayment plan––neither of which is expected
to curb the industry’s worst practices.
The fee cap
included in H.R. 1214, like the cap in Illinois’
Payday Loan Reform Act of 2005, fails to address high-cost installment loans,
or longer-term loans used by many companies to avoid strong consumer
protections. This loophole is well
documented in Woodstock Institute’s recent report The
Illinois Payday Loan Loophole.
Likewise,
the optional repayment plan in H. R. 1214 will do little to break the
back-to-back refinancing that keeps borrowers on the hook for interest payments
while never reducing the principal owed.
In Illinois, the borrower take-up rate for the state-mandated repayment
plans is abysmally low––less than one percent, according to a recent report issued
by the Illinois Department of Financial and Professional Regulation, a
state agency charged with regulating the payday loan industry.
Instead of
H.R. 1214, Woodstock Institute and others support S.500, a bill introduced by
Senator Durbin (D-IL) that would establish a national 36 percent interest consumer
rate cap.
A national
usury cap is the best way to protect borrowers,” said Lynda Delaforgue,
co-director of Citizen Action/Illinois and convener of the Monsignor John Egan
Campaign for Payday Loan Reform, a coalition of organizations working to reform
the industry in Illinois.
H.R. 1214
will be considered by the House
Financial Services Committee on Thursday April 2, at 2:30 p.m. Eastern Time
and is expected to face steep opposition from consumer groups across the
country.
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