A bipartisan group of lawmakers has introduced legislation to thwart President Obama’s crackdown on payday loans, while evidence has emerged that regulators at the Consumer Financial Protection Bureau conspired with left-leaning groups to draft their regulations against the industry.
In March the CFPB proposed payday rules to end what it calls “payday debt traps” by limiting the interest rates payday lenders can charge, prohibiting borrowers from taking out more than one loan at a time and by requiring lenders to assess the borrower’s ability to pay. Mr. Obama has long championed such reform, however, many states are upset with how the initiative has been handled at the federal level.
Florida, in particular, has criticized the CFPB for not considering its payday lending regulations as a model for the federal proposal. The state argues if the CFPB’s recommendations hold, the majority of Florida’s authorized payday lenders will be put out of business, and consumers will be forced into less regulated and more predatory products.
The entire Florida delegation, including Democrat National Committee Chairwoman Debbie Wasserman Schultz, wrote CFPB Chairman Richard Cordray this spring, urging him not to pursue a one-size-fits-all model in the agency’s rule-making. Representatives in the state later met with the director face to face to plead their case, where he reportedly was unsympathetic.
“They acknowledged there were some elements of the [Florida] model they liked, but they never made a commitment to adopting it,” Rep. Carlos Curbelo told The Washington Times. “In our view [the CFPB’s proposed payday regulations] are going to make it impossible or difficult to offer this kind of product, and people like me who represent a lot of low-income households and immigrants, these loans may mean the difference between keeping a car or losing a car, or they might just need a little extra cash.
“A lot of people use this product responsibly, and lot of others don’t, and we have to protect them,” said Mr. Curbelo, a Florida Republican. “We think Florida has reached this balance. This type of loan needs extra scrutiny, but that doesn’t mean it should be outlawed entirely.”
So some members of the delegation decided to take things into their own hands.
On Monday Rep. Dennis A. Ross, Florida Republican, introduced a bill dubbed the “Consumer Protection and Choice Act” with three Democrats and two Republican co-sponsors, all from his state. The legislation will exempt Florida from the federal payday lending regulations being crafted at the CFPB and give other states two years after the CFPB writes its rule to either choose it or the Florida model to implement.
“CFPB has proposed a one-size-fits-all policy on payday loans that would undo the work of Florida and other states to set a strong balance of consumer protection and access to short-term credit. This will force consumers to turn to more expensive alternatives or unlicensed lenders, as our entire delegation noted in our letter to CFPB Director Cordray in April of this year,” Mr. Ross said in a statement to The Times.
The bill has been assigned to the House Financial Services Committee, on which Mr. Ross serves. Its supporters range from liberal Reps. Corrinne Brown and Alcee L. Hastings to moderates like Mr. Curbelo and Rep. Patrick Murphy, Florida Democrat, and a conservative like Rep. Bill Posey, Florida Republican.
There are no federal laws governing the payday industry, however, different states have different payday lending regulations. Thirty-eight states, including Florida, have specific statutes that allow for payday lending, 11 states don’t have any specific payday lending provisions, and 10 states, including New York and Georgia, have outlawed payday lending.
The Florida model is considered one of the toughest in the nation, and was the result of extensive compromise between lawmakers, consumer advocacy groups and the payday lending industry.
Florida’s law prohibits loan rollovers and limits a borrower to a single advance of no more than $500. Payday lenders that are licensed in Florida cannot charge interest fees that exceed 10 percent of the loan, with its terms ranging from seven to 31 days. A statewide database was created, allowing lenders to see whether a customer’s past loans were paid, when they last took out a loan and whether they were eligible for a new one.
The state requires a 24-hour “cooling-off” period between loans. If borrowers can’t repay their loans, they have a 60-day grace period, provided they agree to take part in credit counseling and set up a repayment schedule.
“It is widely known that Florida’s regulatory policy on payday lending is a proven, progressive and effective model, which supports economic growth without limiting access to credit and, at the same time, provides appropriate safeguards for consumers,” wrote Drew Breakspear, commissioner of Florida’s Office of Financial Regulation, in a Nov. 18 letter supporting Mr. Ross’ legislation.
Further angering lawmakers are new discoveries of the cozy relationship the CFPB had with a left-leaning group to craft the payday lending rules.
The CFPB leaned heavily on the Center for Responsible Lending, a left-of-center nonprofit, to draft its proposal to regulate the $46 billion payday lending industry, emails obtained by Politico show. While the group was helping the agency by supplying them with policy papers and consulting hours, it was also advocating the CFPB support its own small-dollar loan program.
The emails document CFPB officials asking the CRL for data on payday lenders “to help focus these efforts” and the CRL asking the government agency for its overdraft analysis “so that CRL could make sure ours was as parallel as possible.”
David Silberman, associate director for research, markets and regulations at the CFPB, asked CRL President Mike Calhoun for his outline on payday lending, to which Mr. Calhoun replied: “Feel free to improve it!”
The emails were released from the agency as part of a Freedom of Information Act request by the payday lending industry trade group Community Financial Services Association, and were published by Politico on Thursday.
“In carrying out our work, the CFPB engages in dialogue with stakeholders on all sides of an issue. That outreach includes discussions with consumer advocates, industry trade groups, individual financial institutions, academics, state, tribal and local governments, and others,” CFPB spokesman Samuel Gilford said in a statement to The Times. “The Bureau hears from stakeholders in a variety of contexts, including the Consumer Advisory Board.
“Perhaps the only real takeaway from these documents is that we respect the work that consumer advocates do and we value their insight into the challenges facing consumers in today’s financial marketplace,” he said.
CRL’s Gary Kalman told Politico that his nonprofit has been working on payday lending issues for more than a decade and should have a seat at the table in helping to shape the new regulations.
“I think it is fairly typical for agencies to reach out and to talk to a variety of stakeholders to make sure that they get all the information they need to make a rule,” Mr. Kalman told Politico.