2015 is likely to be a year that in the United States will likely see a push by consumer and civil rights groups to changed current legislation in payday lending. It is predicted that these groups aim to follow suit with the U.K’s current policy & legislation. The United Kingdoms Financial Conduct Authority (FCA) which is an independent financial regulatory body in the United Kingdom, but operates independently of the United Kingdom government proposes payday loans cap of 0.8% per day. The plan for the U.K at least is to cap payday loans so that no borrower will have to pay back more than twice what they borrowed. The U.S like the U.K is increasingly taking a second look at the payday loan industry at what many political leaders call predatory lending.
Elizabeth Warren (D-Mass.) said “Right now, I just came out of a hearing on payday lending,” , Warrens top target at the present is combating payday lenders who charge typically poor to middle class Americans upwards of 700% or higher interest rates, trapping borrowers in a non stop cycle of re-rolling loans over and over, trapping them further into debt. Senator Warren is however worried about the current state of congress, stating before the republican take over of the senate and congress that “If Republicans get in charge of the Senate,” says Warren, “a hearing like that has no chance of happening. They’ll get to roll over the issues of importance to the American people.”
One area of payday lending that Democrats agree on is stopping the Payday loan industries preying on the military. The Obama Administration is seeking to shut down loop holes in the 2007 Military Lending Act, which was passed to protect service members from abusive and predatory payday lending practices that were targeted at U.S service members. The payday loan industry was quick to react to the bill using creative methods to bypass every aspect of the law. Payday lenders have been bypassing the military’s 36 percent interest rate cap using clever loopholes to get around the current rate cap. The Department of Defense or DoD is seeking on capital hill to have these loopholes closed. According to the CFPB or Consumer Financial Protection Bureau, Lenders have been getting away with charging service members upwards of 500 percent interest, which is 464% more than the current law allows. The lenders simply tweaked their products with minor changes in the wording and paper work to bypass the law entirely.
Republicans are more likely to be resistant to any changes in payday lending practices. Thom Tillis who succeeded in his run for U.S. Senate in North Carolina supported the easing of restrictions on military lending and has hauled in an extremely generous amount of campaign contributions from the financial services industry. Jordan Shaw who is his campaign manager stated that “wanted to make sure that people still have these loans as an option.” Yet it is clear that on both the state and federal level in North Carolina the payday loan Industry owns the politicians of that state. In North Carolina in 2011 the payday loan industry succeeded in a push by financial services lobbyists to ease interest rate restrictions.
While on the Federal level the industry has been facing more regulation due to efforts by the Consumer Financial Protection Bureau, sadly the payday loan industry has been buying state level politicians votes thanks to vigorous financial services lobbyists. The payday loan industry has been targeting the laws affecting their lending practices on the state level and have been succeeding at this level, Arizona, Florida, Indiana, Kentucky, Missouri, and North Carolina have eased financial regulation laws in favor of the payday loan lenders.
Not much Federal legislation may pass in 2015 regarding payday lending, but the FTC is closely working with the Consumer Financial Protection Bureau to ensure that consumers are protected in the financial marketplace from abusive practices by payday loan lenders. Many private consumers rights groups are joining the fight and this could force the hand of politicians much like it did in the U.K in 2014. Americans for Financial Reform and the more than 100 consumer, civil rights, labor and community organizations are urging the federal government and state governments to do sweeping reforms to the industry. In particular the groups aim to curb or abolish pre-authorized payment methods that are used to collect on payday loans such as post dated checks , the electronic equivalent known as direct ACH debiting of checking accounts and any other automated repayment methods which trap Americans and ensure that no matter what the loan writer gets paid even when the loans cannot be repaid. One of the main issues on these private rights groups and on the Consumer Financial Protection Bureau is to force the payday loan lenders to better underwrite these loans with an ability to repay rule as well as placing caps on the APR these lenders may charge. Any such legislation however must be carefully worded to avoid any loopholes as the payday loan industry is infamous for exploiting and creating loopholes to defeat the spirit of any law meant to curb their unfair lending practices.