Great editorial from the NY Times:

It seems like just a little loan, a few hundred dollars in advance of payday. But at an interest rate of $15 per $100, that little loan gets big in a hurry. And if another loan is needed — which sometimes happens, since the last payday loan took so much pay — total costs can soon exceed the amount borrowed in the first place.

Payday loans — advances that are to be repaid on payday — are so burdensome and so pernicious that in 2006 Congress effectively banned them for military families. Given all the problems workers face right now, Congress should extend this protection to everybody. Unfortunately, some members are pushing an ersatz reform that would allow payday operators to charge what amounts to an annual percentage rate of 391 percent.

Luis Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit, argues that the bill would improve the payday rates in the 35 states with only minimal controls over payday loans. His bill is supported by many people in the lending industry, many Republicans and some consumers.

This regressive bill is even backed by some members of Congress who should know how these loans prey on needy people. New York bans payday loans. But New York’s Gregory Meeks argued in a hearing on the bill that it would provide “options” for people who, in earlier times, “would come back without a limb” if they failed to repay loan sharks on the street.

Others have argued that without these miniloans, people would bounce checks, incurring average costs of $27 or more per overdraft. The overdraft fees that some banks charge are scandalous and deserve more Congressional scrutiny. That does not mean an industry that makes $50 billion a year in loans should be touted as an alternative.

A better option is already in place in some states and for the military — keeping short-term or small loans under a 36 percent annual interest rate, which is high enough. Representative Maxine Waters, a Democrat from California, assessed the Guttierez bill correctly when she said: “We’ve got to resist any attempt to make it look as if we are cracking down, when in fact we are opening the door to more abuse.”

A version of this article appeared in print on April 13, 2009, on page A20 of the New York edition.

Our view: Predatory lenders don’t deserve a break from federal lawmakers

After all that Arizonans and people in other states have done to try to rid themselves of payday lenders, it was disheartening to learn some members of Congress are actually entertaining the idea of giving the payday-loan industry new life.

The Associated Press reported April 2 that two congressmen, Rep. Luis Gutierrez, D-Ill., and Rep. Joe Baca, D-Calif., have introduced legislation that would regulate payday lenders.

The AP reported that Gutierrez’s bill, which payday lenders are opposing, would cap the annual interest rate for a payday loan at 391 percent, ban so-called “rollovers” – which let borrowers who can’t afford to pay off a loan renew it for additional fees – and prevent lenders from suing borrowers or docking wages to collect debts.

Baca’s bill, which the payday industry favors, would allow some rollovers and pre-empt state laws, which would effectively pave the way for payday lending in states whose laws currently make it difficult or impossible. It also allows online lenders to charge higher fees than the brick-and-mortar stores.

Both of these bills should be rejected.

Payday lending is effectively banned in 15 states. Arizona could join that group next year if a 2000 law that granted lenders an exemption from the state’s usury laws expires as scheduled.

We’ve editorialized often that payday loans amount to legalized loan-sharking. Allowing lenders to charge interest rates of 400 percent for people who can least afford expensive loans often makes borrowers’ financial situations worse, not better.

The AP reported that the legislation follows stepped-up lobbying efforts and an increase in political contributions by the payday-loan industry to certain members of Congress in recent years.

Gutierrez and Baca have both received financial support from the industry, the AP reported.

Consumer groups have criticized Gutierrez’s bill, calling it filled with loopholes and a gift to payday lenders.

“We don’t believe that this is going to protect consumers. It would, in fact, condone the payday lending that can be extremely harmful to the people who can least afford it,” Jean Ann Fox of the Consumer Federation of America told the AP.

Last fall, Arizona voters overwhelmingly rejected an initiative that would have kept payday lenders in the state indefinitely. The bills being discussed in Congress could undermine that effort as well as anti-usury laws elsewhere.

At the end of 2006, Congress effectively banned payday loans for military personnel, capping loans to such borrowers at 36 percent. If Congress considers payday loans bad for the national’s military force, they should also be considered unwise for the rest of Americans.

We urge Congress, particularly Arizona’s delegation, to fight payday lending. Arizonans have spoken clearly that they don’t want these predatory loans.

If Congress members are really listening to the people – and not payday lenders and their lobbyists – they’ll quickly learn that payday loans are a bad deal.

To add your comments, click here.

To submit a Letter to the Star, thanking them for staying on top of this issue, click here.

From the Center for Responsible Lending:

Payday industry’s support of false reform has preserved its predatory business model in state after state

Washington, DC - The federal debate on payday lending practices is heating up. A bill in the House, H.R. 1214, features measures intended to reform abusive payday lending but that have failed at the state level to curb loan flipping practices that trap the financially vulnerable. By contrast, Illinois Sen. Dick Durbin (S. 500) and California Rep. Jackie Speier (H.R. 1608) have introduced common-sense bills that would restore consumer protections by placing a 36 percent annual interest-rate cap on consumer loans. The Center for Responsible Lending supports S. 500 and H.R. 1608.

CRL’s research shows that rollover bans fail to stop payday lenders from trapping borrowers into back-to-back loans, which are simply rollovers by another name.

“When rollovers are banned, industry simply replaces them with back-to-back loan flips that continue to ensnare people in long-term debt carrying an annual percentage rate of 400 percent,” said CRL senior researcher Leslie Parrish. “Payday lenders know this and that’s why they support rollover bans.”

Veritec Solutions LLC, a company that sells enforcement tracking services to states that ban rollovers, yesterday challenged CRL’s assertion that such bans have been ineffective in reforming payday lending abuses. Veritec’s assertion that rollover bans stop loan extensions is beside the point, because back-to-back transactions allow payday lenders to practice the very same abuses.

Rollovers Versus Back-to-Back Transactions: A Distinction Without a Difference

*
A double-digit cap on annual interest rates, such as the 36 percent cap Sen. Durbin and Rep. Speier favor, is the only kind of measure that has effectively stopped abusive payday loan flipping. Fifteen states plus the District of Columbia have stopped it by imposing a cap in the 36-percent range, and Congress applied the cap in 2006 to protect military families nationally. A new CRL survey finds that over 70 percent of Americans support a cap of 36 percent or lower.

How do payday lenders get around rollover bans?

Payday lenders evade rollover bans by making another loan to the same borrower in a short period of time, often just as the borrower pays off his initial loan and before he’s left the payday store. A series of rollovers or a series of back-to-back loans is a legal distinction without a difference, except in name, for borrowers.

Many states have banned rollovers, a practice that nets payday lenders repeated interest payments of about $50 on a $300 loan, without ever reducing the principal the customer owes. But the average borrower ends up paying about $500 in interest on top of the original $300, whether or not rollovers are banned.

Veritec cites data showing borrowers pay off their loans within two days of the due date as evidence that states’ attempts to ban rollovers work. But, for the vast majority of Oklahoma borrowers who take out multiple loans a year, over half of subsequent payday transactions happen as soon as the previous loan is repaid, and 88 percent of these are originated before the typical borrower receives the next paycheck two weeks later. Data from Florida show a similar pattern. Veritec’s own data, obtained by CRL through a public-records request from state regulators in Florida and Oklahoma, show this to be the case.

Industry does not oppose rollover bans; they don’t slow loan flipping

The only provision in H.R. 1214 that the payday industry’s lobbying group, the Community Financial Services Association of America (CFSA), publicly opposes is one that would impose an interest-rate cap of 391 percent on the typical two-week loan. CFSA opposes any interest-rate cap.

The futility of rollover bans is epitomized by a North Carolina payday borrower interviewed by CRL, who was flipped into new loans for five years by Advance America, one of the nation’s largest payday lenders and a CFSA member. Advance America did not use rollovers; instead it closed out the loan and re-opened it with new documents on the day that the loan was due. The borrower was in payday debt for years without any rollovers at all.

Ninety percent of payday lending business is generated by borrowers with five or more loans per year. Nineteen states ban rollovers. Some other states limit rollovers to between one and six. But data from five of the states that limit rollovers—Colorado, Florida, Michigan, Oklahoma, and Washington—show no reduction in the payday lending industry’s dependence on repeat loans.

Even in states with cooling-off periods between loans, like Florida and Oklahoma, which Veritec cites as places where rollover bans work, most repeat loans are made within a few days of the old loan, showing borrowers can’t make it to the next payday without re-borrowing. (See the CRL report, http://www.responsiblelending.org/pdfs/springing-the-debt-trap.pdf)

For more information contact: Kathleen Day 202-349-1871, kathleen.day@responsiblelending.org; Carol Hammerstein 919-313-8518, carol.hammerstein@responsiblelending.org; or Charlene Crowell 919-313-8523, charlene.crowell@responsiblelending.org.
Or visit www.responsiblelending.org.

###

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.

From OpenCongress Blog:

In light of our current debt-fueled economic crisis, Congress is looking at reforming one of the most predatory forms of lending-high-interest, short-term payday loans. But according to a range of consumer, community and civil rights groups the leading bill in Congress to deal with the issue, the Payday Loan Reform Act of 2009, would actually protect the “predatory payday loan business model and will stall or stop the significant progress that has been made at the state level to curb usurious lending.”

The section of the bill that has caught the attention of the payday loan reform advocates is 2(d), ironically entitled “Additional Protections for Consumers.” It reads:

It shall be unlawful for a payday lender to-’(1) require a consumer to pay interest and fees that, combined, total more than 15 cents for every dollar loaned in connection with a payday loan;

Upon first read, that doesn’t sound bad, but the groups that have come out against the bill – Consumers Union, ACORN, Americans for Fairness in Lending etc. – explain that lenders will be able to apply that rate for each pay cycle, meaning a 390 percent APR for typical payday loan borrowers. Here’s how their letter (.pdf) to members of Congress begins:

We the undersigned consumer, community and civil rights groups urge you not to co-sponsor or support H.R. 1214, the “Payday Loan Reform Act of 2009.” Although this bill shares the same title as H.R. 2871 in the last Congress, it will have the exact opposite impact on consumers.

Last session’s bill placed severe limits on unfair payday loans; H.R. 1214, by contrast, essentially condones the predatory payday loan business model and will stall or stop the significant progress that has been made at the state level to curb usurious lending.

H.R. 1214 provides Congressional approval to payday loans at rates of 390 percent APR for two weeks or 780 percent APR for one week.

The loan cap of fifteen cents per dollar loaned in HR 1214 authorizes lenders to charge $60 for a typical $400 loan, which is due in one pay cycle.

This means that, for the typical borrower with nine loans per year, H.R. 1214 authorizes lenders to collect $540 in finance charges for a $400 loan taken out over an 18-week period.

The Associated Press recently put out a story about how the payday load industry has “deployed well-connected lobbyists and hefty sums of campaign cash to key lawmakers to save themselves.” The article says that the industry opposes the Payday Loan Reform Act of 2009, but this is probably just a convoluted ploy to align public opinion, which is against predatory lending, in favor of this weak bill. Here’s the AP piece:

The payday lending industry’s trade association has spent more than $1 million annually for each of the last four years lobbying Congress, including $1.4 million last year, according to disclosures filed with Congress.

It has beefed up its team of Washington hired guns to a dozen, including well-connected financial services lobbyists Tim Rupli and Wright Andrews, who each have firms bearing their names.

It also has stepped up its campaign giving in recent years, forming a political action committee that contributed more than $200,000 in 2007 and 2008, much of that to lawmakers who serve on the Senate Banking and House Financial Services committees, according to Federal Election Commission filings compiled by the Center for Responsive Politics. Those committees have jurisdiction over the industry.

Individual payday lending companies including Cash America Inc. and Advance America Cash Advance, have also stepped up their political activities.

“As the Hill has become more interested in our industry, we have stepped up our efforts,” in Washington said Steven Schlein of the Community Financial Services Association, the trade group for payday lenders.

“Congress is beginning to realize that there aren’t other alternatives,” to payday lending, Schlein said.

A newer player representing Internet payday lenders – a growing segment of the market – also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared to about $2,000 in the 2006 contests.

Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900.

The group has also helped host several fundraisers for lawmakers with say over what happens to the industry, according to invitations collected by the Sunlight Foundation, which tracks political parties.

Those included a fundraiser last year for Rep. Joe Baca, D-Calif., a Financial Services committee member. Dinner and a reception at the fundraiser at a Capitol Hill townhouse cost at least $1,000.

Mike Lillis the Washington Independent has more.

Dear Supporters,

We defeated the payday lenders’ $15 million campaign in Arizona, but they’re not done.

They have taken the fight to Washington, and they are looking to undo what we’ve accomplished here and in 15 other states across the country.

They’re trying to pass the Payday Loan “Reform” Act of 2009 – a deceptively titled gift to themselves — and unfortunately, they’ve managed to buy some pretty powerful support.

Sound familiar? Just as Prop 200 would have done, this “reform” measure would in fact authorize 391 percent interest payday loans.  It would give usury a federal stamp of approval, and turn back the work we’ve done in Arizona and 15 other states across the country.

Help us stop this dangerous bill!

The Payday Loan “Reform” Act of 2009 — H.R. 1214 – is sponsored by Congressman Luis Gutierrez of Illinois. The industry is using the VERY SAME TACTICS they used in Arizona to deceive or co-opt policy makers: spending millions of dollars, hiring a host of well-connected lobbyists, donating lavishly to campaigns of both Democrats and Republicans, and spreading misinformation everywhere.

This bill would legitimize payday lending at 391 percent interest.  We must defeat it!

Members of Congress are back home from Washington on spring recess for ONLY EIGHT MORE DAYS. Now is the time to contact them.

You helped defeat the payday lenders in Arizona in 2008.  Because of you, Arizonans made their verdict clear:  No more legalized loan sharking!  Now we must make sure Congress does not undo our progress.

Pick up the phone and call Arizona’s Members of Congress.
Tell them to OPPOSE H.R. 1214 – The Payday Loan “Reform” Act of 2009.

Rep. Ann Kirkpatrick – (928) 445-3434
Rep. Trent Franks – (623) 776-7911
Rep. John Shadegg – (602) 263-5300
Rep. Ed Pastor – (602) 256-0551
Rep. Harry Mitchell – (480) 946-2411
Rep. Jeff Flake – (480) 833-0092
Rep. Raul Grijalva – (520) 622-6788
Rep. Gabrielle Giffords – (520) 881-3588

Also, call our U.S. Senators
Tell them to support a bill in the Senate that would actually protect consumers — Sen. Dick Durbin’s bill: “Protecting Consumers from Unreasonable Credit Rates Act of 2009″ (S. 500). This bill would impose a federal fees and interest rate cap of 36 percent annualized, total, on ALL consumer credit.  It would make triple-digit interest loans such as payday loans and car title loans illegal.  Nationwide.  Finally!

Call Sen. McCain today- (602) 952-2410
Call Sen. Kyl today – (602) 840-1891

*

In addition, take a few moments to send a letter to the editor of your local paper today.  The payday lenders would prefer that nobody know about these bills in Congress.  Let’s make sure everyone knows.  As Prop 200 showed, they don’t do well when the public learns what they’re up to.

So please, SPREAD THE WORD FAR AND WIDE.  Don’t delay.  Take action right now, then forward this email to everyone you know.

For more background information please visit our coalition’s website: www.NoMoreLoanSharks.com

Thank you for your continued civic engagement and your immediate attention to this urgent matter,

Kelly

Kelly Griffith
Arizonans for Responsible Lending
(520) 250-4416

*****

PS:  Last week, Jean Ann Fox of Consumer Federation of America (and a local leader of Arizonans for Responsible Lending) testified at the House Financial Institutions and Consumer Credit Subcommittee hearing on H.R. 1214.  Click here to view her toe-to-toe battle with the bill’s sponsor, Rep. Gutierrez, who also chairs the subcommittee.  To read her testimony, click here.

If you’d like to take the next step, contact Members of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.  This is the committee in which we can KILL THIS BILL!

Tell them to vote NO on H.R. 1214 -the Payday Loan “Reform” Act of 2009.

(For those that are co-sponsoring this misleading and harmful legislation, urge them to reconsider their support for the bill and withdraw as a co-sponsor as soon as Congress reconvenes.)

*

Democratic Committee Members involved with this legislation:

Rep. Luis V. Gutierrez, IL, Chairman (Primary sponsor) – (773) 342-0774
Rep. Gary L. Ackerman, NY (co-sponsor) – (718) 423-2154
Rep. Dennis Moore, KS (co-sponsor) – (913) 383-2013
Rep. Paul E. Kanjorski, PA (co-sponsor) – (570) 825-2200
Rep. Carolyn McCarthy, NY (co-sponsor) – (516) 739-3008
Rep. William Lacy Clay, MO (co-sponsor) – (314) 367-1970
Rep. David Scott, GA (co-sponsor) – (770) 210-5073
Rep. Keith Ellison, MN (co-sponsor) – (612) 522-1212
Rep. Gregory W. Meeks, NY (co-sponsor) – (718) 725-6000
Rep. Bill Foster, IL (co-sponsor) – (630) 406-1114
Rep. Joe Baca, CA (Sponsoring an equally BAD bill that would condone 400% interest rates and preempt state consumer protections, HR 1846 – the ‘C.L.E.A.R. Act’) -  (909)885-BACA
Rep. Walt Minnick, ID (co-sponsoring HR 1846 – the C.L.E.A.R. Act) – (208) 888-3188

*

Other Democratic Committee Members NOT involved with this legislation:

Rep. Carolyn B. Maloney, NY – (212) 860-0606
Rep. Melvin L. Watt, NC - (704) 344-9950
Rep. Brad Sherman, CA – (818) 501-9200
Rep. Maxine Waters, CA - (323) 757-8900
Rep. Rubén Hinojosa, TX - (956) 682-5545
Rep. Al Green, TX – (713) 383-9234
Rep. Brad Miller, NC – (919) 836-1313
Rep. Emanuel Cleaver, MO - (816) 842-4545
Rep. Melissa L. Bean, IL – (847) 517-2927
Rep. Paul W. Hodes, NH – (603) 358-1023
Rep. Ron Klein, FL – (866) 713.7303
Rep. Charles Wilson, OH – (888) 706-1833
Rep. Ed Perlmutter, CO – (303) 274-7944
Rep. Travis Childers, MS – (662) 841-8808

Rep. Jackie Speier, CA – Sponsoring a GOOD bill that would cap ALL fee and interest rates at 36 PERCENT ANNUAL INTEREST – H.R. 1608 – Companion to Dick Durbin’s bill in the Senate.  THANK HER FOR HER LEADERSHIP!! – (650) 342-0300

*

Republican Committee Members (none are currently co-sponsors):

Rep. Jeb Hensarling, TX, Ranking Member – (214) 349-9996
Rep. J. Gresham Barrett, SC - (864) 224-7401
Rep. Michael N. Castle, DE - (302) 428-1902
Rep. Peter King, NY – (516) 541-4225
Rep. Edward R. Royce, CA – (714) 744-4130
Rep. Walter B. Jones , NC – (252) 931-1003
Rep. Shelley Moore Capito, WV – 304.925.5964
Rep. Scott Garrett, NJ - (201) 444-5454
Rep. Jim Gerlach, PA – (610) 594-1415
Rep. Randy Neugebauer, TX – (806) 763-1611
Rep. Tom Price, GA – (770) 565-4990
Rep. Patrick T. McHenry, NC – (828) 327-6100
Rep. John Campbell, CA – 949-756-2244
Rep. Kevin McCarthy, CA – (661) 327-3611
Rep. Kenny Marchant, TX – 972-556-0162
Rep. Christopher Lee, NY – (585) 663-5570
Rep. Erik Paulsen, MN – (952) 405-8510
Rep. Leonard Lance, NJ – (908) 518-7733

Thank you for helping defend what we all fought so hard for last November…  A 36% CAP for all lenders.  Period.

From The Washington Independent:

As congressional Democrats work to solidify finance industry reforms, a growing push to rein in payday lenders is running smack into a formidable barrier: the rising influence of the lenders themselves.

Not only has the industry stepped up its lobbying and political contributions in recent years, but it’s convinced at least one powerful Democrat – who just two years ago supported an outright ban on payday loans – that eliminating the practice is politically impossible.

Illustration by: Matt Mahurin

As a result, Rep. Luis Gutierrez (D-Ill.), who heads the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, is pushing a loophole-riddled bill that would allow payday lenders to charge annual interest rates of nearly 400 percent – a proposal widely condemned by consumer advocates and some liberal Democrats, who want to put payday lenders out of business altogether.

Gutierrez wasn’t always so kind to the industry. In 2006, he supported the successful effort that effectively banned payday loans to members of the military by capping interest rates for those borrowers at 36 percent. (The cap was requested by the Defense Department, which called the loans predatory.) A year later, Gutierrez was a lead sponsor of the Payday Loan Reform Act, which would have prohibited the loans outright.

Gutierrez’s office did not respond to requests for comment. But in an interview with The Associated Press last week, the Illinois Democrat conceded that the growing influence of the payday lending industry contributed to his change of heart.

“While they may not be JP Morgan Chase or Bank of America, they’re very powerful,” Gutierrez said. “Their influence should not be underestimated.”

Gutierrez should know. The top contributor to his 2008 campaign was payday lender QC Holdings, which donated $10,100, according to the Center for Responsive Politics. Another payday powerhouse, the Online Lenders Alliance, contributed an additional $4,600.

The episode presents a familiar dilemma for Democratic leaders hoping this year to pass a wide array of consumer-friendly finance reforms, including new anti-predatory lending and credit card protections: On one hand, party leaders agree that consumers need better protections from these industries; on the other, the industries’ influence creates enormous conflicts over how to do it. Caught in the middle are the 19 million Americans estimated to take out payday loans each year, many of whom become trapped in cycles of long-term debt.

Payday loans are generally small, short-term, high-interest loans designed to cover emergency expenses until the borrower’s next payday. Supporters of the industry maintain the loans are a vital resource, particularly for low-income Americans who wouldn’t be eligible for loans through banks that examine credit histories more closely. But critics argue that the usurious rates associated with the loans, which can approach 1,000 percent in some states, ultimately do the borrower more harm than good. Many hope to see the industry disappear altogether.

The Gutierrez bill attempts to strike a compromise between those positions, capping biweekly interest rates at 15 cents on every $1 borrowed – a rate equivalent to 391 percent annually. The proposal would also create a system allowing borrowers to pay back their loans in installments, rather than in lump sums. And it aims to prevent lenders from refinancing loans at higher rates when borrowers aren’t able to pay on time.

At a hearing on the bill last Thursday, Gutierrez said his proposal, while “not a cure-all,” goes a long way to protect consumers from abusive lending practices. “The current state of affairs for these consumers is unacceptable,” he said, “and Congress would be derelict in its duties if we allowed them to remain unprotected from abusive and predatory lending.”

Yet consumer advocates, one of whom testified before the panel, maintain that Gutierrez’s bill is worse than doing nothing. Not only is it punched full of loopholes, they argue, but it effectively embraces a lending system in which triple-digit interest rates are deemed business as usual. Currently, regulation of the payday lending industry is almost exclusively up to states.

“This would essentially provide congressional approval and endorsement of payday loans,” said Jim Campen, executive director of Americans for Fairness in Lending. “It legitimizes the business and slows down states’ efforts to outlaw the practice.”

Consumer advocates also claim that the bill creates an enormous loophole around the refinancing ban, allowing lenders to close out existing loans and offer new ones in the same visit – a practice in which consumers effectively borrow the same money they just repaid, often at higher rates.

“You pay it, and then they hand it right back out in the same few minutes that you’re there,” said Carol Hammerstein, spokeswoman for the Center for Responsible Lending. “That whole business model is not helpful to borrowers.”

Hammerstein said that of the 19 million Americans who take out payday loans, CRL estimates that 12 million are caught in “a repeat cycle” in which they’re taking out at least five separate loans a year.

In yet another loophole, the Gutierrez bill applies only to loans with durations of 91 days or less. In response to similar windows adopted by states, advocates warn, payday lenders have simply extended the loans beyond the stated time frame. “They’re getting around it by offering longer-term loans,” said Tom Feltner, policy and communications director at the Woodstock Institute, a community reinvestment group. “And they’re keeping the same high interest rates.”

Consumer groups instead are rallying behind another payday loan bill that would cap annual interest rates at 36 percent. That bill – sponsored by Sen. Richard Durbin (D-Ill.) in the upper chamber and Rep. Jackie Speier (D-Calif.) in the House – would effectively kill the industry, which says it can’t manage the loans profitably at that level.

Indeed, that’s the point, said Speier spokesman Mike Larsen. “They will certainly cease to exist as they currently operate,” Larsen said. “[Speier] makes no bones about that.”

The industry, for its part, opposes both bills. “Predatory lending applies only to the mortgage business,” Troy McCullen, president of the Louisiana Cash Advance Association told House lawmakers last week. “It has nothing to do with rates or fees or APR.”

Gutierrez maintains that the Durbin-Speier bill is a recipe for failure. In an animated exchange with a consumer advocate testifying before his panel Thursday, he argued that an outright ban is politically impossible.

“You don’t like the payday [model]. I don’t like the payday [model],” Gutierrez said to Jean Ann Fox, director of financial services at the Consumer Federation of America. “You wish to eliminate it. You wish to ban it. That’s not possible. That’s not possible.”

But that’s not the sentiment in the upper chamber, where an aide said Tuesday that the Durbin bill “is likely to move” this year as part of a larger finance reform package being assembled by Senate Banking Committee Chairman Chris Dodd (D-Conn.). Dodd’s office did not respond to a call seeking comment.

Speaking Tuesday at a street-corner press conference in Chicago – staged, not coincidentally, in front of a payday lending business – Durbin said the time is right for Congress to act on his proposal to reform the industry.

“I think the situation is totally out of hand,” Durbin said, according to local reports. “Whether you’re talking about credit card accounts, whether you’re talking about these payday loan operations, the interest rates they’re charging now are nothing short of outrageous.”

To add your comments to the original story online, click here.

In today’s East Valley Tribune:

Arizona voters made it clear last year they don’t want payday lenders in the state. But the defeat of Proposition 200 by a wide margin could become moot depending on what happens in Washington where lawmakers are weighing the first-ever federal regulations of the industry.

And one of those plans would overrule any Arizona laws.

The move would be a major setback for foes who managed to beat back a $14.6 million campaign and thought they had finally put the issue to rest.

Payday loans only became legal in Arizona in 2000 when lawmakers, lobbied by the industry, agreed to craft an exemption from state usury laws. These limit annual interest rates on most loans to no more than 36 percent.

This special exemption technically did not alter the interest cap. In fact, it doesn’t even consider the transactions loans but instead “deferred presentment transactions.”

In essence, a borrower writes out a check for up to $500 that is not good. The lender agrees not to cash it for up to two weeks.

For that, the lender can charge up to $17.85 per $100 borrowed for up to two weeks, a figure that, computed out, calculates to annual percentage interest of more than 400 percent.

That 2000 law, however, did include a provision that made it an experiment: It self-destructs on June 30, 2010.

Unable to get lawmakers to repeal the sunset at least not on terms the lenders found acceptable, they took their case directly to the public last year.

The initiative did have some reforms. For example, anyone who could not make good on the check after two weeks would be entitled to an extension, interest-free if regular payments were made. And the maximum fee would be lowered to $15 per $100 borrowed, a figure that still tops 390 percent.

But those changes, and that $14.6 million campaign, failed to do the trick: Proposition 200 went down by a 3-2 margin. And so far this session, no state lawmaker has been willing to introduce legislation to repeal the self-destruct date in the face of that public vote.

All of that means payday lenders will have to close up by July 1, 2010, maybe.

That wild card is because industry lobbyists have turned their attention to Washington where various measures billed as regulating the industry on a federal level have been introduced.

And with that comes the risk that federal legislation would trump any state laws and make the voter defeat of Proposition 200 and the sunset date in Arizona law meaningless.

Arizona Attorney General Terry Goddard, who sided with foes of Proposition 200, said his reaction to the move is “virtually unprintable.” But he said it wouldn’t be the first time that an industry, unhappy with state regulations, has looked to a potentially more friendly Congress for relief.

“We’ve had huge setbacks in the past several years because of Washington’s power grab in terms of a variety of consumer protection actions which were being handled by the states and the industry’s feelings they were being attacked,” he said.

Goddard said other bills with pre-emption have “basically frozen consumers out.”

He said, for example, national banks got Congress to block states from regulating their lending practices. The result, Goddard said, was “predatory loans were allowed to flourish.”

While Arizona lawmakers have not stepped forward to keep the payday loan industry alive, there has been a move to replace it sort of, with another type of high-interest loan.

HB 2608 would cover loans from $200 to $3,000. Funds could be borrowed for no less than five months and, depending on the circumstances, for up to 24 months.

The cost of borrowing, like the payday loans, would be measured not in interest but in fees: They would carry a 10 percent origination fee, with a minimum of $15 and a maximum of $75. On top of that, lenders could charge up to 4 percent per month.

Rep. Andy Biggs, R-Gilbert, sponsor of the measure, acknowledged that could translate into an annual percentage rate of just short of 100 percent on a $750 loan. But Biggs said that is justified because these loans, which are unsecured, have a high rate of default.

The measure stalled on a 4-4 vote last month in the House Banking and Insurance Committee, though the possibility of resurrection later this session remains.

Related

Payday lenders thwart limits

To add your comments to this story on the East Valley Tribune’s site, click here.

This one‘s getting a lot of hits across the country:

A House subcommittee wants to legalize payday loans with interest rates of up to 391%. Lobbyists from the payday industry bought Congress’ support by showering influential members, including Chairman Luiz Gutierrez, with campaign cash. The Congressman is now playing good cop, bad cop with the payday industry, which is pretending to oppose his generous gift of a bill.

“While they may not be JP Morgan Chase or Bank of America, they’re very powerful. Their influence should not be underestimated,” Gutierrez, the top Democrat on the Financial Services subcommittee in charge of consumer credit issues, said in an interview this week.

Indeed, the payday lending industry is strenuously resisting Gutierrez’s measure, which it says would devastate its business. The measure would cap the annual interest rate for a payday loan at 391 percent, ban so-called “rollovers” – where a borrower who can’t afford to pay off the loan essentially renews it and pays large fees – and prevent lenders from suing borrowers or docking their wages to collect the debt.

A newer player representing Internet payday lenders – a growing segment of the market – also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared to about $2,000 in the 2006 contests. Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900.

After watching members of the military fall prey to exorbitant payday loans, Congress in 2006 capped the interest rates for military payday loans at 36%. Fifteen states have similar caps or outright bans.

Congressman Gutierrez is competing with Congressman Joe Baca to see who can author the biggest giveaway. Baca’s legislation would allow rollovers, higher fees for online banks, and would pre-empt state laws banning payday loans.

Someone—maybe Carolyn Maloney, who did an excellent job with the Credit Card Bill of Rights—needs to step up and punch the payday lending lobbyists in the face.

THE INFLUENCE GAME: Payday lenders thwart limits [AP]

Read More: payday loans, Payday Lending, Congress, News From The Swamp, Money, Personal Finance, Loans, Lending, Corruption

By Julie Hirschfeld Davis
The Associated Press

WASHINGTON – The payday loan industry, threatened by Congress with extinction, has deployed well-connected lobbyists and hefty sums of campaign cash to key lawmakers to save itself.

The strategy has paid off.

Now a top Democrat who once tried to ban the practice is instead pushing to regulate it – a result, he says, of the industry’s lobbying clout.

The lawmaker, Rep. Luis Gutierrez, D-Ill., says his bill does have crucial protections for borrowers and represents the best deal he can manage in the face of the industry’s aggressive lobbying. Consumer groups are condemning the bill as a loophole-riddled gift to the industry.

“While they may not be JPMorgan Chase or Bank of America, they’re very powerful. Their influence should not be underestimated,” said Gutierrez, the ranking Democrat on the Financial Services subcommittee in charge of consumer credit issues.

Payday loans are small, very short-term loans with extremely high interest rates that are effectively advances on a borrower’s next paycheck. They’re typically obtained when a borrower goes to a check-cashing outlet or an online equivalent, pays a fee and writes a postdated check that the company agrees not to cash until the customer’s payday. Finance charges typically amount to annual interest rates in the triple digits, around 400 percent, and can go as high as double that.

Advocates, including many black and Hispanic lawmakers and interest groups, argue the loans constitute the only quick credit option for millions of low- and moderate-income people. Critics contend they are inherently abusive products that trap borrowers in a devastating debt cycle.

Fifteen states either prohibit them outright (which Arizona will do starting next year) or have similar caps. But the loans are virtually unregulated in two dozen other states.

The payday loan industry is strenuously resisting Gutierrez’s measure, which it says would devastate its business. The measure would cap the annual interest rate for a payday loan at 391 percent, ban so-called “rollovers” – where a borrower who can’t afford to pay off the loan essentially renews it and pays large fees – and prevent lenders from suing borrowers or docking their wages to collect the debt.

But consumer groups say the legislation would do little to crack down on the most egregious payday lending practices. They argue it would for the first time lend federal legitimacy to usurious loans and undermine successful efforts under way in several states to slap tougher limits on it.

Jean Ann Fox of the Consumer Federation of America testified Thursday before Gutierrez’s subcommittee on behalf of seven consumer groups outraged by the measure. They’re pushing to cap all lending interest rates at 36 percent annually.

The payday loan industry’s trade association has spent more than $1 million annually for each of the last four years lobbying Congress, including $1.4 million last year, according to disclosures filed with Congress. It has beefed up its team of Washington hired guns to a dozen, including well-connected financial-services lobbyists Tim Rupli and Wright Andrews.

It also has stepped up its campaign giving in recent years, forming a political action committee that contributed more than $200,000 in 2007 and 2008, much of that to lawmakers who serve on the Senate Banking and House Financial Services committees, according to Federal Election Commission filings compiled by the Center for Responsive Politics. Those committees have jurisdiction over the industry.

A newer player representing Internet payday lenders – a growing segment of the market – also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared with about $2,000 in the 2006 contests.

Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900.

The group has also helped host several fundraisers for lawmakers with say over what happens to the industry, according to invitations collected by the Sunlight Foundation, which tracks political parties.

Those included a fundraiser last year for Rep. Joe Baca, D-Calif., a Financial Services committee member. Dinner and a reception cost at least $1,000.

Baca on Wednesday introduced his own version of payday lending legislation that has gotten a warmer reception from the industry. It would allow some rollovers and pre-empt state laws, including Arizona’s. And it allows online lenders to charge higher fees than their bricks-and-mortar brethren.

Baca said he was unaware of any financial support he has received from the payday industry, adding: “Whether they do (give money) or not has nothing to do with the merits of needing this legislation. People still do need emergency loans.”

To add your comments to the Arizona Daily Star’s run of this story, click here.