The payday lending industry has up to now escaped comprehensive regulation from the Consumer Financial Protection Bureau, but the agency is currently working to change that – and payday lenders aren’t expected to let that happen without a vicious fight.
That’s why National People’s Action has launched a campaign to mobilize grassroots political support for robust CFPB rules that will rein in these predatory lenders, in anticipation of well-funded pushback by the industry.
“Whenever they are threatened with more regulation, they have come out of the woodwork with enormous amounts of money,” said Liz Ryan Murray, policy director at National People’s Action. That has certainly been in the case in the handful of states that have moved to curb the lenders. This time, the money would likely pay for a lobbying push to persuade Congress to neuter the CFPB regulatory effort, and ultimately the CFPB itself.
In anticipation of that, National People’s Action has launched an anti-“preyday lenders” campaign. In addition to a commercial and an information campaign featuring a “predator of the week,” there is a petition encouraging the CFPB “to issue strong protections that reform the payday lending industry” and “stand up to the predators who say our families and neighbors don’t deserve decent, affordable credit with reasonable terms.” (Sign the petition and learn more about the campaign at preydaylenders.org/.)
Payday lenders snare low-income people with short-term loans of as little as a couple hundred dollars that come with usurious interest rates and fees, often so high that borrowers end up paying as much as three times in interest and fees the amount they originally borrowed. In a report released earlier this year, the CFPB noted that 80 percent of payday loans are rolled over or followed by another loan within 14 days, the debt becoming a form of financial quicksand for the borrower.
“There is a big chunk of this industry that can’t operate without ripping people off,” Murray said.
A CFPB enforcement action last November underscores her point. Payday lender Cash America had to refund $14 million to military borrowers who were charged excessive interest rates in violation of the Military Lending Act, which caps rates at an annual rate of 36 percent, and other borrowers who were subjected to improper robo-signed debt collection actions.
But the Cash America action benefited from existing statutory rules. There is a real need for regulations that get at the many other ways payday lenders entrap and mislead customers.
Murray said that the industry’s argument that low-income people will lose a valuable instrument to help them make ends meet, address cash-flow emergencies and to build credit if payday lenders are more regulated is demonstrably false. That’s based on the experience of the six states – Arkansas, Arizona, New Hampshire, Ohio, Oregon and Montana – and the District of Columbia that have put reforms in place.
In these states, people who need emergency cash have been able to go to traditional financial institutions, community organizations or or family and friends. “The sky has not fallen,” she said.
“One of the things I find morally offensive is that good, honest, mainstream affordable credit is not something that low-income people should have available to them,” Murray said.
The campaign’s first entry in its rogue’s gallery of predators is Ted Saunders, the CEO of Community Choice Financial. That company currently has 531 stores in 15 states, under such names as Cash-A-Check, Check Cashing USA, CheckSmart and Express Consumer Loans. Interestingly, he predicted that a 2008 Ohio law that capped payday loans at a 28 percent annual interest rate would shut down his business in the state. It didn’t; today close to a fifth of the company’s stores are in Ohio.
The company’s financial filings with the Security and Exchange Commission reports that its new short-term loan average is $404, and that it is able to collect an average of about $50 on each loan. That average works out very handsomely for Saunders, who has earned more than $8 million as CEO since 2011.
A Community Choice Financial subsidiary, Buckeye Check Cashing, got a reprieve from the Supreme Court in 2006, when the court ruled that a contract Buckeye required a Florida customer to sign was valid even though it allowed Buckeye to charge the equivalent of a 1,300 percent annual interest rate on a series of payday loans – well above Florida’s cap at that time of 45 percent – and added that disputes about the terms could only be resolved through arbitration, not brought to court.
Though the Supreme Court did not throw out the contract that Buckeye made its customers sign, it did end up having to pay out $7 million in a legal settlement, including about $5 million to 70,000 customers.
But don’t cry for the folks at Buckeye, or for its parent company. Payday lenders in Florida can still charge a fee of up to 10 percent on a loan of up to 31 days – the equivalent of an annual interest rate of more than 500 percent. And Florida has more rules than many other states. Until the CFPB lays down sensible regulations, there is still plenty of opportunity to get rich off the backs of the poor.