Six U.S. senators sent a letter to the Consumer Financial Protection Bureau this week pushing the agency to take action to protect consumers from predatory storefront and online payday lenders.
The letter encouraged the CFPB to consider successful examples of tough regulation in states such as Oregon, which in 2007 under the leadership of then-Speaker of the House Jeff Merkley (D-Ore.) implemented a range of important consumer protections, including minimum loan terms, fee and renewal limitations and a waiting period between loans with broad coverage for all types of small dollar lending. The senators also suggested the CFPB adopt the proposals in the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act (S.172) that particularly target abuses in online lending.
The letter arrives as the CFPB prepares rules for the small-dollar lending market. It was sent by Sen. Merkley, along with Sen. Dick Durbin (D-Ill.), Sen. Tom Harkin (D-Iowa), Sen. Tom Udall (D-N.M.), Sen. Richard Blumenthal (D-Conn.) and Sen. Elizabeth Warren (D-Mass.).
The senators urged the CFPB to implement stronger regulations limiting so-called "lead generators" who collect and auction payday loan applications to the highest bidder. The letter also requested additional enforcement against anonymous online lenders that avoid enforcement by hiding overseas or through other hard-to-reach structures. The letter further called for ending the practice of remotely-created checks and electronic fund transfers that deduct money from a consumers bank account without permission.
The senators noted the importance of covering a large range of manipulative loans, including auto title loans, as well as the urgency of this issue and its importance to protect working families struggling to avoid financial hardship.
In January 2013, Sens. Merkley, Udall, Durbin and Blumenthal introduced the SAFE Lending Act. Among the protective measures, the legislation would put control of consumers bank accounts back into consumers hands, crack down on lead generators and stop offshore payday lending. The legislation is co-sponsored by Sen. Harkin and Sen. Warren.
Recent CFPB data indicates more than 80% of payday loans are rolled over or renewed within 14 days. Online payday lending is a rapidly growing business, now accounting for 40% of all payday loans.
"Sadly, the evidence shows that these loans trap consumers in a cycle of debt in which consumers end up owing more than the initial loan amount, an appalling practice that exploits the financial hardship of hard working families and exhibits a deeply flawed business model that does not consider borrowers ability to repay the loan," the senators wrote in the letter to CFPB Director Richard Cordray. "The CFPB was established precisely to crack down on these types of predatory practices and to provide strong consumer financial protections our families need and deserve. We urge you to swiftly take action."