Merkley introduces consumer protection bills

Legislation's focus: online payday loans, medical debt

WASHINGTON - Sen. Jeff Merkley, D-Ore., on Tuesday introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act, the second bill introduction in a week-long effort to highlight the need to protect consumers.

The SAFE Lending Act would crack down on the worst practices of the online payday lending industry and give states more power to protect consumers from predatory loans.

"We threw the payday lenders, who prey on families when they're at their most vulnerable, out of Oregon back in 2007," said Merkley. "Technology has taken a lot of these scams online, and it's time to crack down.  Families deserve a fair shake when they're looking to borrow money, not predatory loans that trap them in a vortex of debt." 

The senator said many of these short-term payday loans involve exploding interest rates, eventually accruing interest of 500 percent or higher.

Over 20 states have passed legislation to stop abusive lending, but these efforts have been challenged by the growing online presence of payday lenders. 

The SAFE Lending Act has four main provisions:

Ensures That Consumers have Control of their own Bank Accounts

  • Ensures that a third party doesn't gain control of a consumer's account through remotely created checks (RCCs), which are checks from a consumer's bank account created by third parties. To prevent unauthorized RCCs, consumers will be able to preauthorize exactly who can create an RCC on his/her behalf (such as when traveling).
  • Allows consumers to cancel a debit (just like they can cancel a check) in connection with a small-dollar (payday) loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.

Closes Loopholes and Creates a Level Playing Field In State Usury Law Enforcement

  • Requires all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state.  Only states, not the federal government, have laws to prevent 400% APR loans.

Bans 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 even led to fraudulent debt collection.
  • The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.

Stops Offshore and Other Illegal Online Payday Lending in Violation of State Law

  • Gives the Consumer Financial Protection Bureau authority on its own behalf and upon petition by state Attorneys General or other local regulators to shut down payment processing for lenders that are violating State and other consumer lending laws through the Internet.
  • Carefully constructed not to negatively impact the Internet. 

The legislation is endorsed by Americans for Financial Reform, Center for Responsible Lending, and the Consumer Federation of America.

As speaker of the Oregon House in 2007, Merkley led the effort to protect consumers against abuses by the payday lending industry by imposing an interest rate cap of 36% on all consumer finance loans and limiting rollovers of short-term loans.

Merkley, a leader on consumer financial protection in the Senate, introduced legislation yesterday to keep consumers' credit from being harmed by paid-off medical debt. These bills are part of a series of legislation he is introducing to ensure that Oregonians are treated fairly and are not victims of scams in the financial marketplace.

On Monday, Merkley introduced legislation to prohibit companies from using paid off or settled medical debt in assessing consumer credit scores. The Medical Debt Responsibility Act could help as many as 75 million Americans.

"Oregonians shouldn't have to pay more on their mortgage or their credit card simply because they had the bad luck to need medical care," said Merkley. "Unforeseen accident or illness can happen to any one of us. We can't change that fact, but we can change the law so that responsible working families aren't hit with unfair credit reports for years after medical debt has been paid off."

Currently, medical debt collections can significantly damage a consumer's credit score for years, even after the debt has been settled or paid off.  As a result, consumers can be denied credit or pay higher interest rates when buying a home, obtaining a credit card, or applying for a small business loan. 

Medical bills differ in a number of ways from other bills. The bills are often submitted first to insurance, and it can take considerable time to determine the accurate amount actually owed by the consumer.

Consumers must navigate a complex and confusing billing system and wait for decisions from one or more insurance companies to find out how much they owe.

For this reason, consumers often do not learn that they are delinquent on a medical bill until they hear from a collection agency, by which time their credit score has already suffered.

In addition, medical debt is atypical because consumers have little choice over whether to incur medical expenses or how much debt they accrue. Due to this unique nature of medical debt, its predictive value on credit reports is low.

Merkley's bill fixes this problem by prohibiting consumer credit agencies from using paid off or settled medical debt collections in assessing a consumer's credit worthiness.  In addition, the bill will require the creditor or credit rating agency to expunge the medical debt from the consumer's record within 45 days from the day it is paid off or settled.

The Medical Debt Responsibility Act was endorsed last Congress by the American Medical Association, Consumers Union, Mortgage Bankers of America, NAACP, and the National Home Builders Association.  It was cosponsored by Senators Dick Durbin (D-IL), Chuck Schumer (D-NY), Tom Harkin (D-IA), Sherrod Brown (D-OH), Robert Menendez (D-NJ) and Richard Blumenthal (D-CT).

Each of the bills Merkley is introducing this week is aimed at ending financial tricks and traps or ensuring that people get treated fairly by financial institutions.

"Oregonians work hard enough to make ends meet and put a little money away," Merkley said, "and they shouldn't have to worry that they're getting ripped off in their financial transactions."

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