Under Trump Administration leadership, the Consumer Financial Protection Bureau (CFPB), which previously was set to institute national rules related to payday loans, has suddenly reversed course on consumer protections from payday predators. Without strong CFPB protections at a national level, state laws protecting consumers will be all the more important.
“We need the Consumer Financial Protection Bureau to work for American consumers, not powerful Washington interests like the predatory payday loan industry. But the Trump Administration is letting them write their own rules so it’s important that we act,” said Senator Baldwin. “This legislation will crack down on predatory payday loan schemes and empower consumers so they are protected from scams.”
In recent years, many states have put in place tough laws to stop abusive lending, but payday predators have continued using online lending to prey on consumers. Internet lenders hide behind layers of anonymously registered websites and “lead generators” to evade enforcement. Even when the lending violates the law, abusive payday lenders can empty consumers’ bank account before they have a chance to assert their rights. Payday lenders with access to consumers’ bank accounts are also issuing the money from loans on prepaid cards that include steep overdraft fees. When these cards are overdrawn, the payday lender then can reach into the consumer’s bank account and charge the overdraft fee, piling on further debts.
1. Ensure That Consumers Have Control of their Own Bank Accounts
· Ensure that a third party can’t gain control of a consumer’s account through remotely created checks (RCCs) – checks from a consumer’s bank account created by third parties. To prevent unauthorized RCCs, consumers would be able to preauthorize exactly who can create an RCC on his or her behalf, such as when traveling.
· Allow consumers to cancel an automatic withdrawal in connection with a small-dollar loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.
2. Allow Consumers to Regain Control of their Money and Increase Transparency
· Require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Many individual states currently have much tougher laws than the federal government. There is currently no federal cap on interest or limit on the number of times a loan can be rolled over.
· Increase transparency and create a better understanding of the small-dollar loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau.
· Ban overdraft fees on prepaid cards issued by payday lenders who use them to gain access to consumers’ funds and to add to the already exorbitant costs of payday loans.
· Require the CFPB to monitor any other fees associated with payday prepaid cards and issue a rule banning any other predatory fees on prepaid cards.
3. Ban Lead Generators and Anonymous Payday Lending
· Some websites describe themselves as payday lenders but are actually “lead generators” that collect applications and auction them to payday lenders and others. This practice is rife with abuse and has led to fraudulent debt collection.
· The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.
In the Senate, the SAFE Lending Act is cosponsored by Senators Patty Murray (D-WA), Richard Blumenthal (D-CT), Bernie Sanders (I-VT), Ron Wyden (D-OR), Edward J. Markey (D-MA), Dianne Feinstein (D-CA), Cory Booker (D-NJ), Elizabeth Warren (D-MA), Tom Udall (D-NM), Tammy Duckworth (D-IL), Tina Smith (D-MN), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Martin Heinrich (D-NM), and Dick Durbin (D-IL).
The SAFE Lending Act has been endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, Consumers Union, Greenlining Institute, Main Street Alliance, National Association of Consumer Advocates, National Consumers League, People's Action, National Rural Social Work Caucus, Public Citizen, Southern Poverty Law Center, UNITE HERE, Unidos US, and USPIRG.
An online version of this release is available here.