Though the CFPB has yet to release its proposed rules for payday lenders, the drop is expected any time now and is rather eagerly anticipated. Though the exact contents of the rules are not known, the year or so of speculation on the topic has centered on some likely areas.
Most consumer and payday lending advocates agree the regs will likely cap how much interest can be built into a loan, how long the terms must last, how many consecutive loans consumers can take out, how well consumers’ ability to pay is factored into the decision to lend and how firms that offer such loans are legally allowed to market them to consumers.
That list of likely areas of regulation also covers the sum total of topics that payday loan advocates and payday loan critics agree on. From there it gets ugly pretty quickly, summed up in part by the title of the last Congressional Subcommittee hearing on this topic:
It went just about as well as one might reasonably expect, which is to say very little progress was made. But that’s been pretty much the relationship between the CFPB and the legislature so far — hearings are held, accusations are made and then everyone goes back to business as usual.
But Congress managed to actually meaningfully move in a somewhat bi-partisan manner last week – which was a surprise to just about everyone — when they legislatively limited the power of the CFPB’s payday lending regulations.
It’s not the first time such a legislative move has been made — all kinds of bills have been proposed, all of which had died a quiet death in Committee due to their a lack of Democratic support.
This time, things are a little different. The Chairwoman of the Democratic National Committee is backing the proposed legislation — and advocating for it very publicly. Might something actually happen this time, or is it more Congressional theater about consumer protection?
The Consumer Protection and Choice Act
First proposed by Florida Rep. Dennis Ross, The Consumer Protection and Choice Act (H.R. 4018) is a pretty simple premise that doesn’t seek to directly take on the CFPB’s general power (as previous bills have attempted to do), but instead goes after how their rules will be implemented.
In short, the law would basically delay the implementation of any new CPFB rules for two years in any states that have payday lending laws at the same level of the state of Florida’s.
Florida’s laws limited consumers to a single loan at a time and require a 24-hour cooling-off period between loans – two elements widely speculated to be included in the CFPB’s forthcoming rules.
But Florida doesn’t not have a strong interest cap. APRs can run as high as 280 percent and consumer advocates note that a majority of consumers in Florida are still taking out multiple payday loans between individual paydays, and thus staying in a cycle of debt.
“In spite of the industry-backed Florida law, 88 percent of repeat loans were made before the borrower’s next paycheck,” and 85 percent of payday loans are issued to people who have taken out at least seven loans per year,” noted a coalition of consumer advocacy groups in a letter sent to members of Congress in opposition to the law.
The Usual Suspects
As with any attempt to regulate — or really even discuss — payday lending, the usual suspects offered their usual responses.
Opponents of payday lending hate it, calling it a “payday for payday lenders,” and an attempt to gut the CFPB’s rules preemptively.
Advocates of payday lending call it a sensible compromise that both protects consumers from rapacious lenders and overzealous lawmakers.
More likely than not you could almost guess the political affiliations of everyone involved by knowing if they were pro or against the proposed bill.
Almost, but not quite — as an big outlier has emerged.
The Unusual Suspect
Debbie Wasserman Schultz is an often outspoken and usually pretty enthusiastically party-line towing chairwoman of the DNC broke ranks. And when she did, she apparently surprised some folks on the Hill by not only signing onto the the bill as a sponsor, but also pushing it among lawmakers.
The memo — which The Huffington Post has reportedly seen — that is being passed around by Wasserman Schultz staffers describes the Florida state law as a “model” for consumer laws on payday loans. The memo also says the CFPB should “adjust their payday lending rules to take into account actions Florida has already taken.”
The bill has also been given vociferous support by the Wasserman Schultz office through her staff.
“As a state lawmaker, she helped write Florida’s law that has sharply reduced the need to go to bad actors, curbed predatory practices and created standards and protections for low-income borrowers,” Wasserman Schultz Spokesman Sean Bartlett told The Huffington Post. “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.”
Wasserman Schultz support has done little to draw left-leaning support to the bill measure, as consumer groups are less than impressed with her claim that the Florida law is a model.
“The problem here is that Florida’s law is a sham,” said Gynnie Robnett, director of the Campaign to Stop the Debt Trap at Americans for Financial Reform. “It was backed by the industry.”
Wasserman Schultz is not alone. A total of seven Democrats are currently co-sponsoring the bill, including five from Florida. Six Republicans from the state are backing it.
Will it make a difference?
With Wasserman Schultz taking a pounding on the left and little Democratic support, it is unlikely the bill won’t find itself dead by process – like many of its predecessors. Moreover, it is even less likely to get through the Senate, and almost certainly not going to be signed by the president.
But it is interesting that the chair of the DNC in an election year is taking such a big step away from the CFPB — and perhaps it’s a sign of just how contentious the fight to come over this regulation is really about to be.