Voters prefer protection from payday lending
But regulators seek less
Charlene Crowell Special to OW | 2/13/2020, midnight
Once upon a time in Washington, Congress enacted the Dodd-Frank Wall Street Reform Act that also created the Consumer Financial Protection Bureau (CFPB). For the first time, a federal agency was charged to be the consumers’ ‘financial cop on the beat’. In its first four years, CFPB received 354,600 consumer complaints that led to $3.8 billion in restitution.
But now, under a different administration deregulation has swung the public policy pendulum in the other direction. A bold effort to benefit business and commerce focuses on growing customers, while taking the teeth out of consumer protection with the blessings of federal regulators.
Payday lenders are among the biggest beneficiaries of this policy about-face. Instead of a string of state legislative initiatives, favorable federal regulators are stepping up to help these predatory lenders with the cooperation of banks.
On Feb. 5, a panel of public policy experts testified before the U.S. House Financial Services Committee, chaired by California’s Congresswoman Maxine Waters. The hearing entitled, “Rent-A-Bank Schemes and New Debt Traps”. The Chairwoman’s opening remarks set the tone of the forum.
“In a simple agreement between the bank and the payday lender, the bank is identified as the lender on the borrower’s loan document” stated Waters. “However, the payday lender immediately buys the loan from the bank and does every function related to the loan. In these partnerships, the payday lender bears at least 90 percent of the risk of borrowers’ defaulting on their loans.
“The payday lender then claims the right to charge consumer borrowers triple-digit interest rates because the lender is in partnership with a state- or nationally-charted bank that is exempt from usury laws by the National Bank Act,” added the Chairwoman.
Several panel members agreed.
“Predatory rent-a-bank lending exists for two simple reasons: there are no federal interest rate limits for most lenders, and most banks are exempt from state rate caps,” noted Lauren Saunders, testifying on behalf of the National Consumer Law Center. “Rent-a-bank schemes enable banks to help predatory lenders target communities that the banks are not serving with responsible products, offering loans the banks do not directly offer in their own branches. This is exactly the kind of predatory lending that the CRA (Community Reinvestment Act) is designed to prevent.”
“Communities of color, often largely segregated due to the history of redlining and other federally operated or sanctioned racially exclusionary housing policies, experience higher rates of poverty, lower wages, and higher cost burdens to pay for basic living expenses,” noted Graciela Aponte-Diaz, Director of Federal Campaigns with the Center for Responsible Lending (CRL). “Payday lenders peddling unaffordable loans cause particular harm to these communities.”
“Indeed, the communities most affected by redlining are the same who are saturated by payday lenders today,” continued Aponte-Diaz. “Multiple studies have found that payday lenders are more likely to locate in more affluent communities of color than in less affluent white communities.”
CRL’s payday polling and research underscores Aponte-Diaz’ concerns. A consumer poll commissioned by CRL and conducted from January 9-15 by Morning Consult surveyed approximately 10,000 registered voters and found that: