Financial reform update for payday lenders

This Winter on December 21, the Consumer Financial Protection Bureau (CFBP) will open its doors. This agency was created as part of the Dodd-Frank financial reform law, and will have the power to regulate payday lenders. With the creation of this new agency it is no surprise that payday lenders have more than doubled their spending on federal lobbying in the last year, according to a recent report from The Center for Public Integrity.

In addition to increasing funding and lobbying efforts, some payday lenders have moved their headquarters to Washington. Employees and political action committees of payday lenders are also contributing 80% more to federal campaigns since 2016, matching the behavioral giving pattern from the industry itself.

With increased legislation and oversight, the industry will adapt in order to be able to continue to conduct business as usual. Payday lenders also serve a valuable purpose and serve a segment of population that relies on such financial services. These businesses are spending money on lobbying to ensure that regulators understand the role this industry plays and the financial needs it meets.

While many companies legitimately aim to represent their customers well and continue to meet their financial needs, as well as protect their profits, some payday lenders have sought ways to go around recent legislation and shield themselves from government oversight. In order to skirt consumer-lending laws, some payday loan lenders are uniting with Native American tribes. Others are operating online payday lending sites from headquarters located offshore.

In the example of the tribal-affiliated lenders, consumers have complained of excessive interest rates, some reported at over 1200%. Collection tactics are overly aggressive. Because state governments have little authority over tribes, these companies are getting away with bad business practices. Often times the companies have postal boxes with tribal addresses, but in reality have no other connection to the tribes themselves. According to a special report on debt deception from The Center for Public Integrity, lawsuits in California, Colorado, West Virginia and New Mexico claim these lenders should be immune from lawsuits and regulation because they are tribal enterprises, even if they serve non-Native customers living nowhere near Indian lands.

Elizabeth Warren, the presidential assignee to oversee the launch of the CFPB has stated that payday lending will be a high priority for the agency. She aims to balance the needs of families that need short-term solutions for small loans, while minimizing the debt that can come with these types of services.

For additional information on the CFPB and its activities, please visit the web site here.

Payday loan news

If you live in Texas, you will be interested in recent legislation submitted by Representative Vicki Truitt, R-Keller, and chairwoman of the House Pension, Investments and Financial Services Committee, who this week introduced a package of legislation reported by the Star-Telegram. The legislation would require lenders to register with the Consumer Credit Commissioner, which could deny an application based on criminal record, as well as require lenders to file annual reports. Her main goal is to punish and eliminate unethical lenders.
While many legislators seek to eliminate or strictly limit the pay day loan industry, Rep. Truitt aims to bring moderation to preserve the industry, while also mitigating risk for greater emergence of offenders who seek to take advantage of borrowers. The legislation would put pay day and car title lenders under the authority of the Office of Consumer Credit Commissioner. Her compromise effort might be tough to pass due to recent attempts and subsequent failures in previous legislative sessions, but she is working hard to negotiate with industry representatives and consumer advocates to find a middle ground.

Two other Senators have also recently stepped forward with legislation to regulate the industry. Senators Wendy Davis, D- Forth Worth, and Royce West, D-Dallas have put forth legislation they say will close an existing loophole that allows pay day lenders to bypass traditional restraints that govern other lenders, with the intention to curtail exorbitant charges that can reach annual interest rates and fees of over 500 percent.

While there is a coalition of backers to the aforementioned legislation that includes support from a variety of organizations, the Consumer Service Alliance of Texas, which is connected to lenders that operate pawnshops throughout Texas, opposes the bill. Lenders have insisted that if regulation is too strict, they will be forced to leave the state, which Rep. Truitt points out will only bring increased corrupt actors to fill in the need for pay day loans and other similar services. For this reason, she is seeking a middle ground to unite both sides, as well as enforce new regulation that would benefit and protect the consumer.

For more information on the bill introduced by Rep. Truitt and to track its stages, you can find updates here.