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.

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