For years deceptive and predatory lenders have bilked millions of trusting consumers from their hard-earned monies, while consumer advocates have fought back for fair and transparent lending. On February 11, another contentious round of exchanges on debt-trap lending occurred on Capitol Hill. Unlike previous forums, however, this one came with an open bias.
A subcommittee of House Financial Services, held a hearing named, “Short-term, Small Dollar Lending: the CFPB’s [Consumer Financial Protection Bureau] Assault on Access to Credit and Trampling of State and Tribal Sovereignty.”
With a title like that, the presumption of objectivity took a holiday. Committee members and most panelists criticized the consumer protection agency for proposing rules to rein in abusive practices in the payday loan market.
“I find it offensive that you would say that people aren’t smart enough to make decisions for themselves,” said Rep. Mia Love of Utah, believed to be the first Black representative in Congress from the state.
Subcommittee colleagues who spoke after Rep. Love ironically asked questions that suggested they did not understand how the payday loan industry works. For example, many talked about meeting the needs of the ‘unbanked’ when payday lenders do not make loans to these consumers. A payday lender is assured that a borrower will repay monies loaned due to their direct access to borrowers’ bank accounts. By being first in line to be repaid, little is left to pay for food, rent, utilities and other household living expenses.
Rep. Keith Ellison of Minnesota, one of a few voices for fair lending rules later remarked, “If the Financial Services Committee and this Congress want to help the unbanked, let’s have that conversation. But providing misleading cover for predatory lenders will not help the unbanked. It will hurt those fighting to stay in the financial mainstream.”
More defense of the payday industry came from Indiana Attorney General Greg Zoeller and Dennis Shaul, chief executive officer of the Community Financial Services Association of America. Both defended the industry and their so-called ‘best practices’ that have turned a blind eye to lenders’ triple-digit interest rates that inevitably trap financially vulnerable borrowers into long-term debt.
“CFSA member companies are licensed and regulated, and they adhere to a code of Best Practices,” said Shaul.
If all of these claims were true, there would have been no need for the Department of Justice to indict and arrest a payday lender just one day before the hearing.
Scott Tucker, operator of one of the nation’s largest internet payday loan enterprises and Timothy Muir, his lawyer, were charged and arrested on February 10 with violations of both the Truth in Lending Act (TILA) and Racketeer Influenced and Corrupt Organization Act, more commonly known as RICO.
The criminal indictment alleges that the two ran a $2 billion payday business in violation of state laws that capped interest rates on loans. The loan rates offered by Tucker and Muir were as high as 700 percent and affected over 4.5 million consumers from at least 1997 to 2013.
Additionally, because the payday lending monies are held in bank accounts owned by the Miami Tribe of Oklahoma, a Native American tribe, the tribal corporation agreed to forfeit $48 million. The non-prosecution agreement between the tribe and DOJ also acknowledges that a tribal representative filed false factual declarations in multiple state court actions.
If convicted on the charges of conspiring to collect unlawful debts in violation of RICO, the two defendants would face a maximum term of 20 years in prison. Both would also forfeit the proceeds and property derived from the alleged crimes including bank accounts, homes, an airplane and automobiles.
Just as consumers rely upon other federal agencies to protect the public from harmful products like pharmaceuticals, tainted food, or water, the nation’s financial health can and should be a national concern. The Dodd-Frank Wall Street Reform Act created CFPB to do just that.
The lone hearing panel member to speak in support of consumers and against payday lenders was Dallas’ Rev. Dr. Freddie Haynes III.
In a Dallas community, where 20 payday and auto-title loan stores were located within a five-mile radius of his and other local churches, Dr. Haynes shared how his congregation at Friendship-West Baptist Church now holds a federal credit union charter. The credit union offers “Liberty Loans,” up to $500 in value on six month terms and at an annual interest rate of 28 percent. After several years’ experience making these micro-loans, not a single borrower has defaulted on this lending alternative.
Commenting on Dr. Hayes’ community-based efforts, Rachel Anderson, CRL’s Director of Faith Affairs said, “Many churches do step in with affordable loans and other kinds of support to struggling households but these are a complement to, not a substitute for, just regulation of this industry,” said Anderson.
“We don’t want Jesus to say in the Judgment, ‘I was hungry and thirsty, and you gave me a payday loan,” noted Rev. Haynes.
Somebody ought to say ‘amen.’
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at [email protected]