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- Payday Reform Bill of 2009
Payday Reform Bill of 2009
By Silla Brush Published: 04/02/2009
Check-cashing lobby spends big to defeat new regulations
By Silla Brush
Posted: 04/01/09 06:57 PM [ET]
Payday lenders are girding for a million-dollar lobbying campaign this year to beat back legislation on Capitol Hill that would put federal restrictions on the industry for the first time.
While much of the attention in Congress since last fall has been focused on the broader financial crisis and bailing out some of the nation’s largest banks, payday lenders are raising money and hiring lobbyists to fight new limits that will come up for the first time this year at a House Financial Services subcommittee hearing on Thursday.
Democrats in the House and Senate have introduced a series of bills seeking to rein in the industry and the exorbitant fees they and consumer advocates contend the industry charges. Despite the flurry of activity, Rep. Luis Gutierrez (D-Ill.), the subcommittee chairman and sponsor of one bill, is at loggerheads with consumer advocates over the best way forward, while the industry is beefing up its lobbying efforts to defeat stringent federal regulations.
The $40 billion industry is made up of roughly 23,000 lenders, such as Check ’n Go, Advance America, Cash America and Check Into Cash, that make short-term loans to borrowers who agree to pay back the loan plus interest at their next payday. Critics argue the industry charges steep fees for loans typically lasting two weeks. At an annualized rate, which the industry contends is an unfair portrayal because loans are not typically held for a full year, a 15 percent rate amounts to 391 percent.
The industry, which makes roughly $7 billion in fees each year, has been suffering in the financial crisis, said David Burtzlaff, a research analyst who follows the industry at Stephens Inc. “While you may think that in tougher times people are more inclined to borrow, these companies are not seeing any kind of growth,” he said.
The typical borrower, Burtzlaff said, takes out between eight and 10 loans each year.
The Community Financial Services Association of America, the industry’s main trade association in Washington, is planning to raise more than $1 million from its 14,000 store members for a lobbying campaign this year. The industry expects to have 11 lobbyists working the issue in the Capitol, and is coordinating with online lenders and with some of the larger individual payday firms with their own Washington lobbyists.
The association spent $440,000 for six lobbying contracts in the fourth quarter of 2008 alone, including $240,000 for Timothy R. Rupli & Associates Inc., according to congressional lobbying records.
Gutierrez’s bill seeks to impose a 15 percent rate, allow borrowers at least once every six months to extend their repayment terms, ban rollovers and provide better terms for consumers in 23 states that have higher rate caps under state law.
Jeff Kursman, spokesman for Check ’n Go, said the bill pre-empts state law and does nothing to protect the industry from state legislatures passing stiffer terms in the future. “We can’t support that in any way, shape or form,” he said.
But consumer advocates, who supported a different Gutierrez bill in the last session of Congress, say the current bill, which has 22 Democratic co-sponsors, is too lenient. Jean Ann Fox, director of consumer advocacy at the Consumer Federation of America, said the current bill amounts to “business as usual” for the industry. Fox, who is slated to testify on Thursday, said the bill would grant the industry legitimacy in the 15 states and District of Columbia that do not currently have laws on the book.
“Publicly, the industry says they oppose this bill,” Fox said, “but I have no doubt that they would be very pleased if Congress gave this bill a seal of approval. I can just hear the lobbyists at the state legislatures now saying, ‘This is what Congress said is OK.’ ”
Kursman said that’s flat wrong. “We have 19 million Americans who used our product last year. That makes us a pretty legitimate industry,” he said.
Gutierrez appears to want to split the difference between the two sides. “I fear that both extremes in this debate do prefer the status quo,” Gutierrez said in a statement this week, “which means that some states would have adequate protections from payday lenders, and others would continue to be at the mercy of the most unscrupulous actors in the industry — that’s unacceptable.”
Moreover, Gutierrez said that the bill last session “would not have garnered the necessary votes to make it out of committee.”
“In introducing the payday reform bill, we want to be sure that consumers have access to a safe, reasonable means of acquiring the capital they need in a pinch, without getting caught in a never-ending cycle of debt,” Gutierrez said in a statement to The Hill.
Gutierrez himself appears in the middle of the issue. He seeks to crack down on lenders, while also receiving thousands of dollars in campaign contributions from a leading firm in the industry. The largest political action committee (PAC) donor to Gutierrez in his 2008 reelection was the PAC for Kansas-based QC Holdings, one of the nation’s largest payday lenders with 585 branches in 24 states. The PAC contributed more than $10,000 to Gutierrez; meanwhile, the firm’s chairman and vice chairman, Don Early and Mary Lou Early, contributed $7,800 to the congressman’s reelection campaign, according to the Center for Responsive Politics and Federal Election Commission data.
“The fact that my bill is the first legitimate bill to strictly regulate the payday industry should demonstrate that there is nothing that could detract from doing what is right to protect consumers,” Gutierrez said. “If there is a tougher bill out there that can pass the House floor, I would readily support it.”
Consumer advocates, including the Center for Responsible Lending (CRL), Consumers Union, U.S. PIRG and the federation, favor a House bill offered by Rep. Jackie Speier (D-Calif.) and the Senate companion sponsored by Sen. Dick Durbin (D-Ill.). That bill would impose a 36 percent annual rate cap on all interest rates. According to a survey from CRL, three-quarters of those polled support a 36 percent cap. That bill is a non-starter with the industry.
“That would shut the industry down, period,” Burtzlaff said. Rep. Joe Baca (D-Calif.) is working on a third House bill, according to his spokesman
Payday Lending - FederalPayday Lending - Federal
