The House of Representatives will vote Thursday on the Financial CHOICE Act, Rep. Jeb Hensarling's (R-Texas) attempt to repeal and replace the Dodd-Frank Act. According to its sponsors, the CHOICE Act will “create hope and opportunity” for consumers by, among other things, “holding Wall Street accountable.”
But tucked down toward the bottom of the nearly 600-page bill is a provision that is plainly designed to make sure the very worst players of Wall Street — payday lenders, and the banks that may soon partner with them — will be free to cheat consumers at will. Section 733 of the act would, with the stroke of a pen, eliminate the Consumer Financial Protection Bureau’s authority to regulate payday loans.
It’s well-established that the payday lenders prosper when borrowers are unable to pay their loans back right away. The industry’s business is built on trapping vulnerable consumers in a cycle of debt in which they must keep taking out new loans just to pay off the old ones.
According to the bureau’s research, more than four of every five short-term loans are re-borrowed within a month; and the majority of short-term loans are borrowed by consumers who take out a least 10 loans in a row. According to the Center for Responsible Lending, this so-called “loan churning” accounts for two-thirds of industry profits.
It’s unsurprising then that the vast majority of Americans — Republicans and Democrats alike — dislike payday lenders. According to a 2016 national survey conducted by GBA Strategies, just 3 percent of registered voters have a favorable opinion of payday lenders, and they vote accordingly.
In the 2016 election, the same South Dakota voters who voted for President Trump (and elected Republicans to every statewide office) overwhelmingly approved a ballot measure capping interest rates on payday loans at 36 percent. These voters also snubbed an industry-backed bill that deceptively claimed it would cap rates at 18 percent, but, in reality, would have amended the state constitution to create a loophole allowing lenders to charge whatever rates they wanted so long as borrowers “agreed” to the higher rate.
South Dakota is not alone among red and swing states in wanting more — not less — regulation of payday lenders. In 2008, voters in Arizona and Ohio overwhelmingly supported ballot initiatives in support of interest rate caps in those states. Montana voters followed their lead in 2010.
When Iowa Republican caucus-goers were informed of the average APR on payday loans in their state, 82 percent said they oppose payday loans. Not only did Michigan voters oppose payday loans after they learned how high interest rates are; 76 percent said they’d have a less favorable opinion of a political candidate who supported expanding payday loans.
But in many other states, this well-funded industry has been able to beat back reforms and keep charging consumers triple-digit interest rates. Meanwhile, some payday lenders have even sought affiliations with Native American tribes in an effort to escape the reach of state law. Fortunately, the CFPB has made incredible progress in protecting consumers from payday lenders’ abusive tactics since its creation in 2010.
The bureau has obtained $12 billion in relief for 29 million consumers and imposed $600 million in civil penalties against financial services providers generally. Since November 2013, the CFPB has brought 26 enforcement actions against payday lenders in particular, including purportedly tribal payday companies.
The bureau’s proposed payday lending rule, issued in June 2016, would put an end to many of the “risky practices ... that trap consumers in debt they cannot afford.” Among other protections, the rule would require lenders to determine, before issuing the loan, that a borrower will be able to repay the loans without churning and still be able to afford basic living expenses.
It would also limit repeated attempts to debit borrowers’ bank accounts, which enables lenders to rack up more fees without extending new credit. While the proposed rule is not perfect, it is a much-needed step in the right direction, and consumer advocates largely supported it.
Americans favor the bureau’s regulation of payday lenders by wide margins. According to the national GBA Strategies survey, after hearing the specifics of the CFPB’s proposed rule on payday lending, 73 percent of registered voters — and a whopping 76 percent of Republican voters — said they support the proposed rule.
But if Congress adopts the CHOICE Act, the rule won’t ever see the light of day. The bureau itself will almost certainly be weakened, and much of the work it has done over the past six years will evaporate, leaving payday lenders free to run roughshod over hardworking Americans.
This week, each member of the House will have his or her own choice to make. Let’s hope that, instead of handing payday lenders a free pass, they do what the American people have so clearly said they want: Reject the CHOICE Act.
Paul Bland is the executive director of Public Justice, a national public interest law firm that pursues high-impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability and challenge predatory corporate conduct and government abuses. Find him on Twitter @FPBland. Leslie Bailey is an attorney at Public Justice.
The views expressed by contributors are their own and not the views of The Hill.