WASHINGTON - Senator Jeff Merkley and Reps. Suzanne Bonamici and Elijah Cummings introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act Tuesday, aimed at cracking down on some of the worst abuses of the payday lending industry, particularly in online payday lending, and protect consumers from deceptive and predatory practices that strip wealth from working families.
Under Trump administration leadership, the Consumer Financial Protection Bureau, which previously was set to institute national rules related to payday loans, has suddenly reversed course on consumer protections from payday predators. Without strong CFPB protections at a national level, state laws protecting consumers will be all the more important.
“Predatory payday loans trap working families in a vortex of debt. These ultra high-interest loans are unacceptable and destructive,” said Merkley. “President Trump seems determined to turn the Consumer Financial Protection Bureau into the Payday Predator Protection Bureau, making state laws like Oregon’s all the more important. Along with Congresswoman Bonamici and dozens of our colleagues, we’re sending a strong message: Protect states’ rights to protect their consumers.”
“Too many people in Oregon and across the country have been victims of predatory lending, trapped in a cycle of debt to pay emergency expenses or their rent,” said Bonamici. “Even though Oregon has some of the best laws in the country to address predatory payday lending, online and offshore lenders are using loopholes to get around those laws and exploit vulnerable Oregonians. Under Trump’s leadership, the Consumer Financial Protection Bureau is gutting policies that have cracked down on predatory lending. Congress must pass our SAFE Lending Act to curb these predatory activities and protect consumers.”
“Payday lenders routinely prey on hardworking Americans struggling to make ends meet by charging excessive interest rates that trap them in an endless cycle of debt,” said Cummings. “The SAFE Lending Act of 2018 will empower consumers, respect states’ rights, help prevent shadow lending, and give state and federal authorities the tools necessary to combat rogue Internet-based lenders.”
In recent years, many states have put in place tough laws to stop abusive lending, but payday predators have continued using online lending to prey on consumers. Internet lenders hide behind layers of anonymously registered websites and “lead generators” to evade enforcement. Even when the lending violates the law, abusive payday lenders can empty consumers’ bank account before they have a chance to assert their rights, the lawmakers said.
Payday lenders with access to consumers’ bank accounts are also issuing the money from loans on prepaid cards that include steep overdraft fees. When these cards are overdrawn, the payday lender then can reach into the consumer’s bank account and charge the overdraft fee, piling on further debts.
“The Consumer Bureau and congress have in the past understood the way that payday lenders structure loans to catch Americans in a cycle of debt with exorbitant interest rates. It is unfortunate that some in Washington would rather open the loan shark gates than continue to think about sensible borrower protections. The SAFE Lending Act would put Washington back on track to stop the debt trap,” said José Alcoff, manager of the #StopTheDebtTrap campaign, a coalition of over 750 civil rights, faith, veterans, and consumer groups across the country.
The SAFE Lending Act of 2018 puts in place three major principles to make the consumer lending marketplace safer and more secure:
1. Ensure That Consumers Have Control of their Own Bank Accounts
· Ensure that a third party can’t gain control of a consumer’s account through remotely created checks (RCCs) – checks from a consumer’s bank account created by third parties. To prevent unauthorized RCCs, consumers would be able to preauthorize exactly who can create an RCC on his or her behalf, such as when traveling.
· Allow consumers to cancel an automatic withdrawal in connection with a small-dollar loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.
2. Allow Consumers to Regain Control of their Money and Increase Transparency
· Require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Many individual states currently have much tougher laws than the federal government. There is currently no federal cap on interest or limit on the number of times a loan can be rolled over.
· Increase transparency and create a better understanding of the small-dollar loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau.
· Ban overdraft fees on prepaid cards issued by payday lenders who use them to gain access to consumers’ funds and to add to the already exorbitant costs of payday loans.
· Require the CFPB to monitor any other fees associated with payday prepaid cards and issue a rule banning any other predatory fees on prepaid cards.
3. Ban Lead Generators and Anonymous Payday Lending
· Some websites describe themselves as payday lenders but are actually “lead generators” that collect applications and auction them to payday lenders and others. This practice is rife with abuse and has led to fraudulent debt collection.
· The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.
In the Senate, the SAFE Lending Act is cosponsored by Senators Patty Murray (D-WA), Richard Blumenthal (D-CT), Bernie Sanders (I-VT), Ron Wyden (D-OR), Edward J. Markey (D-MA), Dianne Feinstein (D-CA), Cory Booker (D-NJ), Elizabeth Warren (D-MA), Tom Udall (D-NM), Tammy Baldwin (D-WI), Tammy Duckworth (D-IL), Tina Smith (D-MN), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Martin Heinrich (D-NM), and Dick Durbin (D-IL).
In the House, it is cosponsored by Representatives Earl Blumenauer (D-OR), Judy Chu (D-CA), Rosa DeLauro (D-CT), Keith Ellison (D-MN), Raúl Grijalva (D-AZ), Pramila Jayapal (D-WA), Eleanor Holmes Norton (D-DC), Jamie Raskin (D-MD), Jan Schakowsky (D-IL), and Louise Slaughter (D-NY).
The SAFE Lending Act has been endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, Consumers Union, Greenlining Institute, Main Street Alliance, National Association of Consumer Advocates, National Consumers League, People's Action, National Rural Social Work Caucus, Public Citizen, Southern Poverty Law Center, UNITE HERE, Unidos US, and USPIRG.