This is just an update. The act lost one of their sponsors, Rep. Raul Grijalva of Arizona (D). What’s worth sharing is this page. It will show the progress of the bill.
Luis Guitierrez is the head of the House Financial Services. This is where they clean the bill up.
This bill would be the first of its kind for payday loans. It’s competing with another bill sponsored by Dick Durbin named Senate Bill 500: Protecting Consumers from Unreasonable Credit Rates Acts of 2009.
A few months ago, President Obama made it sound like he would systematically take care of everything wrong with America. One of those items is payday loans. Well, the economy sucks and if it does not get better, he’ll have bigger problems to deal with, like not getting re-elected.
Now, there are a few bills out there. Coincidentally, they’re spearheaded by two Illinois congressmen. One is a US Senator, Dick Durbin; and the other is Representative Luis Gutierrez who is top Democrat on the Financial Services subcommittee. Dick Durbin wants to cap rates at 36%, while Luis Guteirrz has put together a real bill that addresses the issue.
If you want to read Luis Gutierrez proposal, you can do it here. Personally, I think the industry should back him unconditionally. He really stuck his neck out, in my opinion.
Unfortunately, the Associated Press is all over him, so this article titled, The Influence game, is surfacing on pretty much every major newspaper.
I wonder if the passing of this bill would allow payday lending to happen again in the black out states, like Arkansas, Connecticut, District of Columbia, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont, West Virgnia, Puerto Rico? Doesn’t federal law trump state law?
Recently, I’ve learned that the government is getting involved more deeply in financial regulation. Now, I’m all for leveling the playing field.
My issue is this, as it pertains to payday loans. They want to install “common sense” rules.
CRL president Michael Calhoun says that “A 36 percent cap on annual interest for consumer credit is a quick, common-sense way to restore protections that have been severely compromised in the consumer credit market. It would cost taxpayers nothing and plug a $5 billion hole in the wallets of working families.”
If this stuff is common sense, then why do we need a rule for it? I guess what he’s saying is that all the people that use payday loans do NOT have any common sense?
I think this is a clear example of economic paternalism.
Payday lending has become big. Now, it’s just a matter of taking sides to see who wins. for the middle 80%, these sides are dictated by the press.
I came across an interesting post by Fitsnews.com. It centered around an op-ed done by former senator George McGovern. It’s worth reading his biography on Wikipedia, here.
He takes on mortagages, healthcare and payday loans. What’s interesting about this post is that Senator McGovern’s stance on big government, especially since he is a Democrat and won the presidential nomination in 1972.
His main point is this “Freedom means responsibility.” He also goes on to say, “The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.”
The House of Representatives are putting together a bill that would effectively cap interest rates at 36%. The AP News reports that several shares of publicly held payday and pawn lenders stock price took a hit for a second straight day. Anecdotally, most of the stock market has been taking a hit, so this news could be completely incidental.
The truth be told, even if this bill never sees the light of day, the impact this will have on public opinion will be felt.
I would love to get a clarification on this point. You can still charge 36% interest and product a triple digit APR, if you’re able to charge fees on top of the loan. Payday lenders have claimed from the beginning that their fees are not interest.
Internet payday lenders received a setback recently. The FTC and the state are seeking to permanently bar 7 US companies (and 4 other British companies were named in the order) from “future violations”, whatever that means; and return any money made while allegedly using illegal collection tactics. Sound pretty vague, if you ask me.
Last November, I published a post title Nevada trying to cut down on Internet payday loans. Apparently, the commissioner of the Department of Regulation in Nevada did not want to deal with out of state claims, made about Internet lenders operating in Nevada. It looks like someone paid attention.
Among other things, the internet lenders are being accused of:
“Violating the law by using unfair and deceptive collection tactics, including falsely threatening consumers with arrest or imprisonment, falsely claiming that consumers are legally obligated to pay the debts, threatening to take legal action they cannot take, repeatedly calling consumers at work and using abusive and profane language; and disclosing consumers’ purported debts to co-workers, employers and other third parties. They also allegedly violated the U.S. Truth in Lending Act and federal Regulation Z by failing to make required written disclosures about key terms including the amount financed, itemization of the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total number of payments and any late payment fees.”
Personally, I’m a little surprised that this has reached the federal level. It seems that Internet Lenders based in the US are being targeted by the state and federal authorities. Just last we, a lender settled with the state of Wisconsin in a post titled Internet Lender hit with $60k class action suit.
Attorney’s for the 7 lenders are working to resolve the complaint. They plan on filing a response to the complaint by March 1st.
One thing for sure is that they’re not stopping just at the lenders. They’ve got their sights on the lead generators also.
The government capped interest rates on the military at 36%. This basically eliminated payday lending to the military. The demand never went away, but it’s nice to hear that the Army is doing something about it. Actually, they’ve been loaning money to their soldiers for quite a while.
This program is called the Army Emergency Relief fund or AER. Andrew Cohen, deputy director for finance and the treasurer of this fund says “Every Soldier that has a valid need has gotten assistance, so the needs of our Soldiers are being met.”
I’m not sure what valid need means. I can’t beleive that this money is made available to the soldiers in an instant.
One caveat is that the money is raised from donations, so at the end of the day, it’s free money.
The Associated press released an article titled Brother, can you spare a payday loan? It’s pretty much making a case against payday loans. The point here is the hypocracy of it all. Many people do not have a problem with credit card balances and medical bills, but payday loans are somehow different.
Notice in the example they use in this article:
The Kroekers’ problems began in 2006 and snowballed until their January 2007 bankruptcy filing. When the couple filed for bankruptcy, they had a mortgage, credit card debt and medical bills to pay. They also had nearly $2,000 in payday loan debt, plus hundreds more in fees and interest.
Don’t bother telling us their credit card and medical bill balances because it would not make these people look like the victims they want us to believe. The reality is that these people did file bankruptcy and got out of paying everyone, including the payday lenders. So who is the victim. I’ll go a step further and say that these people would file bankruptcy with our without payday loans.
My brother, Gus, is a bankruptcy attorney. I asked him if a lot of his clients have payday loans. I was surprised to learn that they did not. In fact, he agreed with a comment I made that most of his clients will take out a payday loan to pay his attorney’s fees right before they file. Since they’re payday debt is within 60 days, it typically is not included in the bankruptcy.
This is an older post that’s been updated:
“Instead of regulating prices charged on small, short-term loans, the authors argue that increasing competition will drive prices down” says Signe-Mary McKernan and Caroline Ratcliffe. This new report by the Urban Institute finds that if payday advances are eliminated they “could be replaced by alternatives that make families even worse off.”
Now, guess who funded this report? They’re not payday lenders. This study was financed by the Charles Stewart Mott Foundation. I think it took a lot of guts. This foundation is committed to supporting projects that promote a just, equitable and sustainable society, since 1926.
Nobody claims that a payday loan is THE solution, but it can be A solution for some people. This is about choice. This report is saying, don’t get rid of it; lets just get it right.
Just like no one likes negative loan amortizations or $4 gallon of gas. Imagine if the government stopped selling us fuel when the price goes over $4? It’s just not the solution and neither is making payday loans unprofitable or making them go away.
Consumer groups should just face the big, pink elephant in the room. There is a huge credit gap in our financial systems. They need to work to fill it and not eliminate it.
These consumer groups should be empowering peoople, not treating them like children.
Here is the full report. Please send it to your legislators.
Analyst Henry Coffey Jr. thinks that President-elect Obama is going to be too busy with the economy to focus on payday lending.
Investors seem to agree with him. EZ Corp and Cash America shares rose on his announcement.