State Attorneys General Boost U.S. House Payday Lender Bill
WASHINGTON – Twenty-five state attorneys general are giving a boost to a bill introduced in Congress this month that seeks to rein in excessive interest rates on payday loans.
The attorneys general filed a comment letter with the Consumer Financial Protection Bureau opposing the agency’s proposed repeal of rules it adopted in 2017 to protect consumers from excessive interest rates and other predatory practices.
The letter argues that eliminating the protections, which were set to go into effect in August 2019, would harm consumers and reduce states’ ability to protect their residents from predatory lending. It also says the planned repeal is inconsistent with the CFPB’s legal obligations.
“The proposal also neglects the experiences of states that have successfully curbed abuses associated with payday and vehicle title lending without hurting consumers,” the letter says.
District of Columbia Attorney General Karl Racine, who helped organize the joint letter, added in a statement, “Rolling back consumer protections on high-interest short-term loans will trap low and middle income borrowers in endless cycles of debt.”
Payday loans are high-interest, short-term loans that must be paid in full when borrowers receive their next paychecks. The lenders who grant them often are called loan sharks.
Days before the attorneys general sent the letter, Democrats introduced a bill in Congress that would cap the interest rates that credit card companies and payday lenders can charge consumers at 15 percent.
The Loan Shark Prevention Act also would allow the postal service to perform some financial functions, such as check-cashing and allowing customers to pay bills through the postal service. Payments through the postal service are intended to eliminate profiteering by intermediaries, such as payday lenders.
Some Republicans are joining Democrats in supporting the bill.
“The bill will officially cap all interest rates on consumer loans at 15 percent, lowering the credit card rates of millions of Americans and functionally destroying the predatory ‘payday’ loan industry,” a statement from Representative Alexandria Ocasio-Cortez, D-N.Y, said. She introduced the bill along with Senator Bernie Sanders, I-Vt., who is running for president.
Credit card interest rates now average as much as 19.24 percent, according to a recent WalletHub’s Credit Card Landscape Report. The rates have been increasing in recent years as the Federal Reserve Bank raises the target rate.
Predatory lending has trapped “millions in a cycle of systemic poverty as their hard-earned money is funneled into exorbitant bonuses for Wall Street executives,” the statement from Ocasio-Cortez says. She is a member of the House Financial Services Committee.
Critics of the legislation say it would hurt credit card companies’ profits and force them to cut out loyalty rewards programs and other popular perks for customers.
Ultimately, it would end up costing consumers more money than it saves them, according to corporate financial advisor Karen Webster.
“Every time governments try to implement price controls to prevent market-based prices from balancing supply and demand, they eventually experience the law of unintended consequences,” Webster wrote in a recent editorial posted on the website Pymnts.com.
She mentioned the example of gasoline price caps the federal government imposed during an oil shortage crisis in 1973.
“So who got hurt the most,” Webster asked. “Not the oil companies, and not the gas station operators. It was the average, hard-working consumers who were ‘supposed to’ have benefited from not having to pay ‘exorbitant’ prices.
“But, of course, they paid – just in a myriad of other ways, including even losing their jobs,” she wrote.
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