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Congress Going Easy on Payday Loan Dealers

April 8, 2009 - by Donny Shaw

In light of our current debt-fueled economic crisis, Congress is looking at reforming one of the most predatory forms of lending — high-interest, short-term payday loans. But according to a range of consumer, community and civil rights groups the leading bill in Congress to deal with the issue, the Payday Loan Reform Act of 2009, would actually protect the “predatory payday loan business model and will stall or stop the significant progress that has been made at the state level to curb usurious lending.” The section of the bill that has caught the attention of the payday loan reform advocates is 2(d), ironically entitled “Additional Protections for Consumers.” It reads:

It shall be unlawful for a payday lender to- ’(1) require a consumer to pay interest and fees that, combined, total more than 15 cents for every dollar loaned in connection with a payday loan;

Upon first read, that doesn’t sound bad, but the groups that have come out against the bill – Consumers Union, ACORN, Americans for Fairness in Lending etc. – explain that enders will be able to apply that rate for each pay cycle, meaning a 390 percent APR for typical payday loan borrowers. Here’s how their letter (.pdf) to members of Congress begins:

We the undersigned consumer, community and civil rights groups urge you not to co-sponsor or support H.R. 1214, the “Payday Loan Reform Act of 2009.” Although this bill shares the same title as H.R. 2871 in the last Congress, it will have the exact opposite impact on consumers. Last session’s bill placed severe limits on unfair payday loans; H.R. 1214, by contrast, essentially condones the predatory payday loan business model and will stall or stop the significant progress that has been made at the state level to curb usurious lending. H.R. 1214 provides Congressional approval to payday loans at rates of 390 percent APR for two weeks or 780 percent APR for one week. The loan cap of fifteen cents per dollar loaned in HR 1214 authorizes lenders to charge $60 for a typical $400 loan, which is due in one pay cycle. This means that, for the typical borrower with nine loans per year, H.R. 1214 authorizes lenders to collect $540 in finance charges for a $400 loan taken out over an 18-week period.

The Associated Press recently put out a story about how the payday load industry has “deployed well-connected lobbyists and hefty sums of campaign cash to key lawmakers to save themselves.” The article says that the industry opposes the Payday Loan Reform Act of 2009, but this is probably just a convoluted ploy to align public opinion, which is against predatory lending, in favor of this weak bill. Here’s the AP piece:

The payday lending industry’s trade association has spent more than $1 million annually for each of the last four years lobbying Congress, including $1.4 million last year, according to disclosures filed with Congress. It has beefed up its team of Washington hired guns to a dozen, including well-connected financial services lobbyists Tim Rupli and Wright Andrews, who each have firms bearing their names. It also has stepped up its campaign giving in recent years, forming a political action committee that contributed more than $200,000 in 2007 and 2008, much of that to lawmakers who serve on the Senate Banking and House Financial Services committees, according to Federal Election Commission filings compiled by the Center for Responsive Politics. Those committees have jurisdiction over the industry. Individual payday lending companies including Cash America Inc. and Advance America Cash Advance, have also stepped up their political activities. “As the Hill has become more interested in our industry, we have stepped up our efforts,” in Washington said Steven Schlein of the Community Financial Services Association, the trade group for payday lenders. “Congress is beginning to realize that there aren’t other alternatives,” to payday lending, Schlein said. A newer player representing Internet payday lenders — a growing segment of the market — also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared to about $2,000 in the 2006 contests. Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900. The group has also helped host several fundraisers for lawmakers with say over what happens to the industry, according to invitations collected by the Sunlight Foundation, which tracks political parties. Those included a fundraiser last year for Rep. Joe Baca, D-Calif., a Financial Services committee member. Dinner and a reception at the fundraiser at a Capitol Hill townhouse cost at least $1,000.

Mike Lillis the Washington Independent has more.

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