DNC Chair Backs Pro-Payday Loan Bill; Thinks 300% Interest Is A Consumer Protection

Image courtesy of eyetwist

You currently can’t get Republican and Democratic lawmakers to agree on a lunch order, let alone jointly support legislation. But one controversial piece of legislation is not only garnering support from both sides of the aisle, it’s also got the Chair of the Democratic National Committee pushing for legislation that would undermine the Consumer Financial Protection Bureau’s ability to regulate predatory lending.

The misleadingly named Consumer Protection and Choice Act was introduced last fall by bank-backed Florida Congressman Dennis Ross, in response to the news that the CFPB would be drafting rules intended to curb the more predatory aspects of payday lending.

Even though the CFPB has yet to release its draft of these rules — which would then be subject to the lengthy public comment process, allowing all interested parties to chime in — the bill would not only delay the Bureau’s efforts to rein in payday lending, but would exempt states with existing restrictions on payday lending.

Ross was quickly joined by several of his fellow Floridian lawmakers, both Republican and Democrat — including Rep. Debbie Wasserman-Schultz. They contend — again, without any evidence — that Florida’s existing limits on payday lending would be undermined by the CFPB rules, and that needy borrowers would be robbed of access to credit.

And recently, according to Huffington Post, Wasserman-Schultz has gone from merely adding her name to the bill’s list of sponsors to actively advocating for the legislation.

In a memo being circulated around Capitol Hill, the DNC Chair describes her state’s law as a “model” that other states should follow for payday loans, rather than the CFPB rules that don’t exist yet.

A rep for Wasserman-Schultz told HuffPo that the current face of the Democratic party helped to write the Florida rules when she was a state legislator.

“The Congresswoman wants to work with the CFPB on the way forward, and believes the Florida law is an example of how to achieve their shared goals of balancing strong consumer protections with preserving access to credit in underserved communities,” says the rep.

But while the Florida payday lending rules do include some protections — limiting borrowers to a single loan at a time; requiring a 24-hour cooling-off period between loans — consumer advocates say they are not to be held up as some sort of paradigm for others to follow.

For example, the Florida rules do put a $500 limit on a single loan, but they allow lenders to charge up to $55 in fees for that loan, which has to be repaid somewhere between 7 and 31 days. For a two-week loan, that comes out to an APR of more than 280%.

Additionally, while the one-day cooling-off period does present a speed bump for borrowers who need to take out another loan to pay back the first one, consumer advocates say it is not preventing the practice that keeps borrowers in a cycle of revolving debt.

In a letter [PDF] sent in December to all members of Congress, a coalition of groups — including our colleagues at Consumers Union — noted that “In spite of the industry-backed Florida law, 88% of repeat loans were made before the borrower’s next paycheck,” and 85% of payday loans are issued to people who have taken out at least seven loans per year.

HuffPo cites recent data from Pew Charitable Trusts, which found that the typical Florida payday borrower takes out nine loans in a year, and spends about six months of the year in debt. Pew calculated the average APR on Florida payday loans at 304%, not much of an improvement on the national average (in states where payday loans are allowed) of 390%.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.