Federal Bill Could Gut Payday Loan Regulations

The Consumer Financial Protection Bureau is expected to crack down on payday loan regulations later this year. But a bill working its way through the House of Representatives in Washington could stop these important consumer protections in their tracks.

Since it was created in 2010, the Consumer Financial Protection Bureau (CFPB) has been working to regulate banks, credit unions, and financial institutions, to protect consumers against abusive lending practices. Last year, the CFPB called for reforms in regulating short-term, payday loans. The agency is expected to release their proposed regulations later this year.

HR 4018

In November, 2015, Representative Dennis Ross, a Republican from Florida, proposed H.R. 4018 – the “Consumer Protection and Choice Act.” The bill would delay any payday loan regulations by at least two years and would make them ineffective in any state with its own payday lending law – like Florida. Now, four months later, Democratic National Committee Chair Rep. Debbie Wasserman Schultz, also from Florida, has signed on as a co-sponsor of the bill.

What's Wrong With Florida's Payday Loan Regulations

HR 4018 puts pressure on state governments to pass payday loan regulations similar to those adopted in Florida.

“The problem here is that Florida's law is a sham," says Gynnie Robnett, director of the Campaign to Stop the Debt Trap at Americans for Financial Reform. "It was backed by the industry.”

A letter signed by over 200 organizations nationwide shows just how ineffective Florida's payday loan regulations are:

• Triple Digit Interest Rates. Florida payday loan borrowers pay an average of 300% annualized interest – that nearly matches the national average where regulations are still in the works.
  
• Lending Without Ability to Repay. Nothing in the Florida law requires lenders to consider the borrower's ability to repay the loan. 88% of Florida Borrowers end up using back-to-back loans, using one payday loan to pay off another in spite of the law's rollover bans and cooling off periods.
  
• Long-Term Cycle of Debt. Payday loans are almost never a one-time event. In Florida, 85% of loans are paid to borrowers with at least 7 loans in the last 12 months.
  
• Abusive Lending Fees. Because of high interest rates and large balloon payments, borrowers nationwide spend $3.6 billion on payday loan fees alone.
  

The letter concludes:

“H.R. 4018 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.”

Effective consumer protection needs nationwide payday loan regulations that are strong enough to fight back against predatory lenders. HR 4018 doesn't cut it. The CFPB needs to be allowed to do its job and put forward strong regulations, not hampered by politics.
Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PC, in Birmingham, Michigan. If you are the victim of abusive lending practices, contact The Liblang Law Firm, PC, for a free consultation today.