Congresswoman renewed push for regulation comes as Arizona Legislature considers bill that would keep industry in business
WASHINGTON – U.S. Rep. Gabrielle Giffords today called on the U.S. Senate to approve increased federal regulation and oversight of payday loan firms, saying the high-interest businesses are “unscrupulous lenders.”
Giffords has already voted for tough regulations intended to curb the predatory practices of the payday lending industry. On December 11, she joined a majority of her colleagues in the House to pass the to pass H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009.
“The status quo in the payday lending industry is unacceptable,” Giffords wrote in a letter to U.S. Sen. Christopher Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee. The committee is considering legislation that would increase regulations on financial institutions.
According to The Los Angeles Times, senators working on the legislation want to make payday lenders largely exempt from oversight by a new consumer financial protection agency.
Consumer advocates had hoped a new agency would severely restrict, or even outlaw, payday loans. That would supersede a patchwork of state regulations that now are in place.
In her letter, Giffords urged that the federal legislation include strong provisions governing payday lenders. “We must ensure that effective regulation is in place to protect consumers from payday lenders and their predatory practices,” she wrote.
Giffords’ letter comes as the Arizona Legislature is considering a bill that would allow payday lenders to continue operating past June 30. That is when the current law allowing payday lenders will expire.
Before 2000, loans with annual interest rates of more than 36 percent were illegal in Arizona. That year, industry lobbyists persuaded lawmakers to approve “deferred presentment transactions” until June 30, 2010. In 2008, Arizona voters soundly rejected an initiative drawn up by payday lenders that would have allowed the industry to continue operating.
Unless the Arizona Legislature now intervenes, the industry will be forced to close at the end of June.
“These lenders are charging $17.65 per $100 borrowed for a two-week loan, amounting to a 460 percent APR (annual percentage rate),” Giffords wrote to Dodd. “The Senate Banking Committee and this Congress would be derelict in its duties if we allowed consumers to remain unprotected from these abusive and predatory lending practices.”
A copy of Giffords’ letter is below.
March 12, 2010
The Honorable Christopher Dodd
Chairman, Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Dodd:
As the Senate Banking Committee works to pass much-needed regulations on financial institutions, I am writing to state my objection to recent proposals being considered that will exempt payday lenders from appropriate oversight.
The status quo in the payday lending industry is unacceptable. American families are facing very tough economic times and this will likely cause many more of them to go to payday lending companies to get money for emergency doctor visits, mounting utility bills and even groceries.
Across the country, there has been a failure to successfully regulate payday lenders, and as a result, too many families pay interest on each payday loan that can be as high as 600% annually and still owe principal. In my home state of Arizona, payday lenders currently operate under an exemption from the state’s 36-percent cap on annual interest rates. These lenders are charging $17.65 per $100 borrowed for a two-week loan, amounting to a 460% APR. The Senate Banking Committee and this Congress would be derelict in its duties if we allowed consumers to remain unprotected from these abusive and predatory lending practices.
In December, the House passed meaningful regulatory reform, with my support. This legislation will create and enforce rules for banks and other financial entities, such as payday lenders. Before the Senate moves to pass any financial regulatory reform bill, I urge you to restore strong provisions that will govern payday lenders.
During this recession, many families have been shut out of mainstream financial services and are turning to these unscrupulous lenders for quick lines of credit. We must ensure that effective regulation is in place to protect consumers from payday lenders and their predatory practices.
Thank you for considering my request and for your continued leadership in this matter.
Sincerely,
Gabrielle Giffords
Member of Congress