Time to end the payday loan industry’s escape act
By Liz Ryan Murray
In the Hill
For more than 12 million American men and women who are lured into the payday loan debt trap each year, escape from a crushing debt cycle can feel impossible. Meanwhile, the payday loan industry has made itself rich by becoming a virtual Houdini – escaping regulations and lavishing money on lawmakers to get its way. It’s time we implemented rules broad enough to stop the payday industry’s tricks and evasion and bold enough to free vulnerable consumers from the debt trap.
That’s why, as the Consumer Financial Protection Bureau (CFPB) considers how best to address rampant and longstanding issues with the payday lending industry, a new push from the Obama administration and the Department of Defense (DoD) to crack down on predatory lending to military service members is a vital step in the right direction.
Payday loans often carry crippling interest rates near 400 percent. When the Department of Defense first researched the impact of high-interest, short-term lending on its troops in 2006 before any regulations were in place, the results were anything but mixed. The DoD concluded that “predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force.” There’s no question about it: these predatory products harm families.
The existing law meant to protect members of the military from the financial hardship caused by payday loans, the Military Lending Act (MLA), includes a cap on payday loan interest rates for military members. Even still, payday predators routinely have found “creative” ways around the law to maximize profits at the expense of families, such as referring service members to installment loan companies or extending loan terms slightly beyond the regulated period.
CFPB Director Richard Cordray succinctly outlined the payday loan industry strategy to skirt the original regulations, saying lenders “lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule.”
That’s why a rule proposed by the DoD last week is so important. It closes the loopholes in the MLA that payday lenders have been exploiting so that we can protect the families that protect us.
Without similar protections for civilians, payday lenders will continue to prey on millions of Americans, fleecing hardworking families to line their pockets. While the Consumer Financial Protection Bureau cannot impose an interest rate cap for all borrowers – a restriction that payday lenders had their Congressional allies put in place – it can issue broad and strong rules to stop the most predatory aspects of the payday industry. The CFPB can and should put a limit on the number of loans consumers could be trapped by each year, stop lenders from gaining access to customers checking accounts, and do basic underwriting to ensure the loans can be repaid.
In the months ahead, we can expect payday lenders to do everything in their power to prevent the CFPB from issuing just these kinds of rules. After all, these rules pose a threat to the massive profits of an industry that operates on deception and intimidation. Lawmakers and officials on Capitol Hill should use this moment to show their support for protecting consumers rather than enabling predators. Now is not the time to provide the payday industry yet another opportunity at escape.
Murray is the policy director at National People’s Action (NPA), a network of grassroots organizations working to advance racial and economic justice. Learn more about NPA’s work on payday lending reform at PreydayLenders.org.