The U.S. House of Representatives broke the hearts of a broad and diverse coalition of advocates after Members of Congress passed predatory lending legislation on Feb. 14.
A bill passed the lower chamber that would render useless state laws in the majority of states, including the 15 states and the District of Columbia where state interest rate limits prevent payday lending. HR 3299, titled the Protecting Consumers’ Access to Credit Act, passed the House on a 245-171 floor vote.
If passed in the Senate and signed into law by President Donald Trump, the measure will preempt state interest rate caps that now limit the annual percentage rates (APRs) on loans to no more than 36 percent. These respective rate caps now save consumers an estimated $2.2 billion in fees every year. If HR 3229 is enacted, these significant savings will be lost.
Additionally, the bill would also allow high-cost installment loans. Currently 34 states, now limit interest rates on a $2,000, 2-year installment loan to no more than 36 percent, and once again, consumers would wind up paying the higher cost.
For Rep. Patrick McHenry, who co-sponsored the bill with New York Rep. Greg Meeks, the measure “marks an important step towards modernizing our financial system and ensuring financial inclusion for all Americans.”
That’s one lawmaker’s opinion. But a California Congresswoman had a vastly different take. Minutes before the floor vote, Congressman Maxine Waters, the Ranking Member of the House Financial Services Committee spoke.
“H.R. 3299 would go much further to allow other third-parties, including payday lenders, to evade or outright disregard state-level laws, and collect debt from borrowers at unreasonably high rates of interest if they purchase loans from a national bank,” said Ms. Waters. “These arrangements are called “rent-a-bank” or “rent-a-charter” agreements, and they allow payday lenders to use banks as a front for predatory behavior and the evasion of state interest rate caps.”
More than 150 organizations spanning consumer advocates, civil rights and faith organizations across the country as well as 20 state attorneys general agree with Congresswoman Waters. Together these state officials and advocates remain determined to preserve the ability of their respective jurisdictions to protect consumers by enforcing existing rate caps that were either enacted by voter referendum or state legislation.
Another claim by the bill’s proponents argued that the legislation would expand lending opportunities for consumers who are now underserved by financial institutions.
That claim was also refuted.
“The claim that this bill will help underserved urban and rural areas by expanding access to credit is false”, said Scott Astrada, the Center for Responsible Lending’s Federal Advocacy Director. “The reality is that it will expand unchecked predatory lending and allow lenders to make high-cost loans, such as short-term and long-term payday loans and car title loans, at rates that exceed existing state interest rate limits.”
As the measure now moves to the U.S. Senate for further consideration, perhaps the upper chamber would be wise to remember that this nation was founded as a democracy – and that its actions would be by, for, and of the people. Any loan that charges triple-digit interest rates costing far more than the actual principal borrowed is predatory and could not be construed to be somehow helping anyone.
Similarly, just as mortgage rules require lenders to determine a borrower’s ability-to-repay a loan before approving an application, so should small-dollar loans. Access to credit is one thing; but triple-digit debt traps are something else.
The sad truth is that predatory lending preys upon people with the fewest financial resources and options. Across the country, many Black and Latino neighborhoods may lack full-service grocery stores and banks; but a profusion of predatory lenders always seem to be nearby.
Even more disturbing, an updated report by the Center for Responsible Lending on payday lending in Colorado found that even in affluent communities of color, the likelihood of a nearby payday store is greater than in low-income, predominantly White areas. In 2016, high cost Colorado payday loans took nearly $50 million in fees alone from customers. In some cases, borrowers took out two or more loans simultaneously from two or more lenders.
“There is good reason over 200 civil rights, consumer, faith-based, housing, labor and veterans’ advocacy organizations oppose this bill,” noted Congresswoman Waters. “The type of credit that this bill helps consumers access is the kind that makes it easier for vulnerable consumers to sink into insurmountable debt – like payday and other high-cost loans.”