You have to wade all the way to Page 403 of the 589-page Financial Choice Act to find a one-sentence provision that obliterates current efforts to bring fairness and responsibility to payday lenders and similar merchants of never-ending debt.
Section 733 of the bill, which could come up for a vote by the full House as soon as this week, declares that federal authorities “may not exercise any rulemaking, enforcement or other authority with respect to payday loans, vehicle title loans or other similar loans.”
With that one line, Republican lawmakers have declared their willingness to allow people facing financial difficulties to be at the mercy of predatory lending practices that typically involve annual interest rates approaching 400 percent.
“They’re trying to sneak in that provision,” Diane Standaert, executive vice president of the Center for Responsible Lending, told me. “It seems like they hoped no one would notice.”
She called the provision “a free pass for payday and title lenders to not be subject to efforts to rein in their abusive practices.”
Payday and title loan companies have been in a tizzy since the Consumer Financial Protection Bureau proposed rules last year aimed at making the industry more trustworthy and consumer-friendly.
The rules would require lenders to determine in advance that a borrower will be capable of making payments while still meeting basic living expenses. The rules also would make it harder for lenders to keep issuing new loans to the same people.
Standaert said payday and title lenders have been lobbying furiously to protect their livelihoods, regardless of the cost or danger to customers.
Enter, stage right, Rep. Jeb Hensarling of Texas, Republican chairman of the House Financial Services Committee and author of the Financial Choice Act.
I’ve already reported that since he first ran for Congress in 2002, Hensarling, has received $1.3 million in political donations from commercial banks, $1.4 million from securities and investment firms, $1.4 million from insurers, and $703,304 from finance and credit companies, according to the Center for Responsive Politics.
This helps explain why his legislation would weaken the CFPB to the point where it would be a consumer watchdog in name only. Hensarling’s decision to single out payday and title lenders for special favors appears to be similarly motivated.
Sarah Rozier, a spokeswoman for the Financial Services Committee, said the contributions from banks and payday lenders had no influence on Hensarling’s legislation.
Payday lenders are fond of depicting their industry, estimated to be worth $46 billion, as serving a vital social purpose. Funds are being made available to people who might have no other way of getting out of a financial hole, they say.
Dennis Shaul, chief executive of the Community Financial Services Assn. of America, a payday-loan industry group, said the CFPB has put forward “a draconian proposal that’ll restrict access to credit for millions of consumers.”
The reality is that the bureau’s proposed rules are neither draconian nor a one-size-fits-all mandate. They’d establish a reasonable baseline for how payday and title lenders should conduct themselves. States would still be able to enact additional regulations if desired.
According to the Pew Charitable Trusts, the typical payday loan borrower is in debt for five months of the year, paying an average $520 in fees to service a $375 loan. More than $7 billion in total fees are shelled out annually. The average borrower’s income is about $30,000.
Let’s call this what it is: loan-sharking.
And let’s also be honest about what Republican lawmakers are doing at the behest of this bottom-feeding (yet politically generous) business: pandering.
It’s all there in black and white.
On Page 403.