The payday loan industry is using a group of well-connected lobbyists, along with very large sums of campaign cash to key lawmakers, to keep from being properly regulated. Apparently, this strategy has paid off based on what is happening in Congress. Even a key Democrat who once tried to ban the practice now is pushing efforts to “regulate” payday lenders. The lawmaker, Rep. Luis Gutierrez (D-IL), says his bill does have crucial protections for borrowers and is “the best deal” he can get because of the industry’s aggressive lobbying. Consumer groups are condemning the bill as a loophole-riddled gift to the industry. The payday lenders – a multi-billion dollar industry – are very powerful and their influence can’t be underestimated.

It’s undisputed that payday loans are very hurtful for low-income citizens. These are small, very short-term loans with extremely high interest rates that are in effect cash advances on a borrower’s next paycheck. They’re typically obtained when a borrower goes to a check-cashing outlet or an online equivalent, pays a fee and writes a postdated check that the company agrees not to cash until the customer’s payday. Finance charges typically amount to annual interest rates in the triple digits, around 400%, and can go as high as double that. Payday loans are inherently abusive products that trap borrowers in a devastating debt cycle. They are as bad and abusive as anything that folks who go paycheck to paycheck have to deal with.

Congress moved in 2006 to effectively ban payday lending for military personnel by imposing a 36% interest-rate cap for such borrowers, and 15 states either prohibit the practice outright or have similar caps. But the loans are virtually unregulated in two dozen other states, a situation that is intolerable. The Gutierrez bill – if passed – would cap the annual interest rate for a payday loan at 391%, ban so-called “rollovers” — where a borrower who can’t afford to pay off the loan essentially renews it and pays large fees — and prevent lenders from suing borrowers or docking their wages to collect the debt.

But consumer groups say the legislation would do little to crack down on the most egregious payday lending practices. They argue it would for the first time lend federal legitimacy to usurious loans and undermine successful efforts under way in several states to slap tougher limits on the practice. Jean Ann Fox, who is with the Consumer Federation of America, says:

We don’t believe that this is going to protect consumers. It would in fact condone the payday lending that can be extremely harmful to the people who can least afford it.

Ms. Fox testified before Rep. Gutierrez’s subcommittee on behalf of seven consumer groups that are rightly outraged about the measure. They’re pushing to cap all lending interest rates at 36% annually. But it appears the lobbying activities by the payday lenders is paying off. The payday lending industry’s trade association has spent more than $1 million annually for each of the last four years lobbying Congress, including $1.4 million last year, according to disclosures filed with Congress. It has beefed up its team of Washington hired guns to a dozen lobby firms, including well-connected financial services lobbyists Tim Rupli and Wright Andrews, who each have firms bearing their names.

Campaign giving has greatly increased in recent years. The industry also formed a political action committee that contributed more than $200,000 in 2007 and 2008, much of that to lawmakers who serve on the Senate Banking and House Financial Services committees, according to Federal Election Commission filings compiled by the Center for Responsive Politics. Those committees have jurisdiction over the industry. In addition to their trade association, individual payday lending companies including Cash America Inc. and Advance America Cash Advance, have also stepped up their political activities. Hopefully, President Obama and his allies in the House and Senate will prevail over the forces of evil and win this battle.

Source: Associated Press

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