thinkprogress | Payday lenders fearing modest federal regulations will cut into their vast profit margins have a new, high-profile ally in Washington: The chairwoman of the Democratic Party.
Rep. Debbie Wasserman Schultz (D-FL) is co-sponsoring legislation to delay and permanently muffle pending Consumer Financial Protection Bureau (CFPB) rules to rein in small-dollar lenders that are currently able to levy triple-digit annual interest rates on the nation’s poorest, the Huffington Post reports.
The bill would force a two-year delay of the CFPB’s rules, which are still being drafted. Last spring, the agency set out a framework for its rulemaking process that indicates it is taking a more modest approach than industry critics would prefer. But the bill Wasserman Schultz signed onto would both delay those rules further, and permanently block them in any state that enacts the sort of ineffectual, industry-crafted regulatory sham that Florida adopted in 2001.
That bill featured “compromise language heavily influenced by industry players,” the Florida Alliance for Consumer Protection notes. Rather than a model for robust oversight that still allows low-income people to access emergency credit when they need it, the group describes the Florida approach as a series of “well-disguised loopholes” that preserve the industry’s abusive patterns.
Those patterns are indisputable. While concerns about how current payday lending customers will meet emergency financial needs under the CFPB rules are sensible enough — no one can be certain how the financial industry will respond to restrictions on the current model, though advocates for the CFPB’s modest approach are confident lenders will still issue such loans at a healthy profit — there is no disputing the data motivating the agency to act.
The industry often notes that a slim majority of all borrowers repay their debt on time, an indicator that many customers are taking an expensive deal and getting back on their feet quickly. But those people aren’t where lenders make money. A full 80 percent of all payday loans are renewals or rollovers of a previous loan. And the real cash comes from customers who get trapped in the near-endless “debt trap” reborrowing cycles. While only 22 percent of borrowers end up rolling their loan over seven or more times, loans in such misery cycles account for 62 percent of the industry’s business. Trapping people in lengthy repay cycles is literally the primary source of industry income.
