In fact, the bill would carve lenders peddling harmful financial products online, like payday and car title loans, out of hard-fought state and federal consumer protections. Disappointingly, Rep. Bobby Rush (D-IL) is a co-sponsor of this bill, which would strip wealth from consumers who can least afford it.
As we outlined in our recent joint report, we’ve seen these games before in Illinois. Payday regulators must avoid creating such loopholes.
In 2001, the Illinois Department of Financial and Professional Regulations issued consumer protections on payday loans with terms of less than 30 days. Payday lenders simply evaded the rules by offering payday loan products with 31-day terms.
“Payday lenders destroy wealth in the middle class,” said Robert Lawless, co-director of the University of Illinois Program on Law, Behavior and Social Science.
Payday lending provides short-term access to credit, but often comes with high interest rates and expensive fees.
The report, “The Case for Banning Payday Lending: Snapshots from Four Key States,” describes state and local battles against the payday lending industry, comparing experiences of states that ban payday lending through strong state usury caps with states that permit payday lending.
A key move in the industry’s playbook is to convince states that the best way to address predatory payday lending is to regulate the industry. But regulations in states that authorize payday loans are too oft en written by industry and porous at best, and across the board fail to eliminate the hooks that trap people in these usurious and harmful loans.
This comment letter supports proposed guidance from the OCC and FDIC regarding bank deposit advance products, which are functionally equivalent to payday loans. The letter also recommends that the OCC and FDIC institute an annual percentage rate cap, require APR disclosure, prevent mandatory automatic repayment, and strongly enforce the guidance. Eighteen organizations signed on to the letter.
Bank regulators released proposed rules on April 30 that, at long last, would enact strong consumer protections for “deposit advance products”—essentially, payday loans offered by a mainstream bank. To hear it from the banks, making sure that borrowers can pay back loans and preventing an endless cycle of debt would somehow make consumers worse off (“Banking group says new regs could push consumers into risky payday loans,” April 28).
The proposed standards require an assessment of the borrower’s eligibility for the product and financial capacity to repay the loan and meet other financial obligations, limit the number of such loans borrowers can receive in one year, and mandate adequate management and monitoring of the significant safety and soundness risks posed by offering these high-cost, short-term loans. The public has an opportunity to comment on the proposed guidance.
Last month, Woodstock joined more than 250 organizations in sending a letter to leaders of the Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, Federal Reserve Board, and Federal Deposit Insurance Corporation to end the practice of payday lending by banks.