Dem study: Lenders finding ways to skirt state payday laws

House Democrats are out with a new report detailing how payday lenders try to skirt state laws.

The Democratic staff of the House Financial Services Committee examined how lenders in five states have found ways to operate around legal limitations placed on high-interest loans.


They found that payday lenders have reestablished themselves as mortgage lenders, online lenders or even aligned themselves with Native American tribes to avoid restrictions on the types of loans they can offer.

“Far too many Americans are being taken advantage of by payday lenders who charge exorbitant rates and trap them in a never-ending cycle of debt,” said Rep. Maxine Waters (Calif.), the committee’s top Democrat. “What this report tells us is that even in states that have attempted to curb abusive payday lending, harmful practices still exist. That’s why we need a strong and effective national standard that will protect all Americans.”

The report comes as a top financial regulator is trying to crack down on payday lending amid opposition from the industry and congressional Republicans.

The Consumer Financial Protection Bureau (CFPB) unveiled long-awaited rules earlier this month that would set strict new standards on the industry.

The proposed rules would require lenders to ensure borrowers can make payments on a loan while still being able to pay for basic living expenses.

Democrats are seeking to bolster that rulemaking effort with this new report, as they argue that lenders have employed multiple tactics to escape efforts at the state level to crack down on high-interest short-term loans. They argue that these examples prove the need for a robust federal standard enforced by the CFPB.

Industry groups are mulling legal action to challenge the rules, while congressional Republicans have been quick to criticize the CFPB’s efforts.

Thursday’s report broke down how lenders have responded to legal curbs on the types of loans that can be offered. For example, Democrats found that in Colorado, some lenders did not have to comply with state law setting interest caps and other limits due to their affiliations with Native American tribes.

And in Ohio, many payday lenders apparently responded to a 2008 law capping interest rates and the amount of short-term loans someone can obtain by recategorizing their business. Under that law, such lenders had to register as short-term loan providers and comply with the new restrictions.

But just a handful did that, while hundreds of lenders registered as mortgage lenders not subject to those restrictions.