The Center for Responsible Lending (CRL) is sounding the alarm over legislation in Congress it says would overturn state laws regulating payday lenders and reduce the newly-granted power of the Consumer Financial Protection Bureau (CFPB).
The object of its concern is HR 6139, which would establish a national charter for "non-bank lenders," primarily payday lenders. Twelve states have banned payday lending within their borders and Congress, in 2006, placed restrictions on payday loans to members of the U.S. armed forces.
CRL warns that if such legislation becomes law, non-bank lenders will be able to bypass the CFPB and stronger state laws to offer high-cost loans and services nationwide and even through the Internet. Moreover, it will set a precedent for many other companies to also seek similar carve-outs from the CFPB and stronger state laws.
What the legislation says
The legislation itself professes to have more consumer-friendly goals.
"Non-depository creditors historically have been primarily State regulated, are not federally insured, generally pose little or no systemic or taxpayer risk, typically have lower operating costs and can employ less restrictive credit standards than depositories, and are a major source of short-term, small loans and financial products or services for underserved consumers, providing such consumers annually with billions of dollars in credit, but the existing State-based regulatory system for such nondepository creditors in many cases increases the credit costs for a consumer and limits available credit alternatives," the legislation states.
The authors of the legislation say removing the burden of state regulations from non-bank lenders will allow them to operate efficiently and even lower borrowing costs to consumers. But those borrowing costs can be extremely high.
Studies have shown a typical payday loan can carry an annual interest rate of more than 400 percent and CRL maintains a majority of borrowers are unable to repay the loan in the allotted two weeks and must roll it over into a new loan.
Who's backing it
HR 6139 has six co-sponsors -- four Republicans and two Democrats. They are Rep. Joe Baca (D-CA); Rep. Stephen Lee Fincher (R-TN); Rep. Gregory W. Meeks (D-NY); Rep. James B. Renacci (R-OH); Rep. David Schweikert (R-AZ); and Rep Pete Sessions (R-TX). Sessions is a member of the House Rules Committee and the other five are members of the House Financial Services Committee, where the bill has been referred.
CRL says the bill, by establishing a national charter for payday lenders, would place their regulation under the Office of Comptroller of the Currency rather than individual state attorneys general and the newly established CFPB.
"The CFPB was created for the purpose of protecting families from the very financial products marketed and sold by the companies covered in HR 6139," the group said in a statement. "Instead, under HR 6139 non-bank lenders will be regulated by a historically more lenient agency that actively obstructed states from reining in reckless subprime lenders and fell asleep at the wheel during the mortgage crisis."
CRL warns that the bill, if it should become law, will allow a two-tier financial system to flourish nationwide, relegating "low- and moderate-income borrowers to higher-priced financial products and services or leaves them with no responsible credit options available."