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.”

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