While the candidates debate who will regulate Wall Street, there is a more sinister practice affecting the poor and working class that may well be given carte blanche if a bill pending in Congress is approved.
Attorneys general for 49 states have signed a letter to Congress objecting to H.R. 6139, which they say would harm many state consumer protection laws, including regulations of so-called payday loans, which have a disproportionate impact in poor and black communities.
The proposal, the AGs said in the Oct. 5 letter, “would eliminate crucial consumer protections in many states and curtail our authority to enforce state laws governing the conduct of financial services companies operating within our borders.”
The AGs said they want to “preserve states’ authority to regulate nonbank lenders and protect consumers from abuses in the high-cost, short-term loan marketplace.”
The letter follows a warning two months ago from the Office of the Comptroller of the Currency, which also told Congress the bill was a bad idea.
Some states have tried to eliminate, or at least cap, the interest on payday loans, which often trap customers into long-term debt that can result in bigger banking problems, including credit card debt, checking account overdrafts, closed bank accounts and even bankruptcy, according to the Center for Responsible Lending, a consumer advocacy group.
A report by the Pew Charitable Trusts revealed African Americans use payday loans with more frequency, even though most payday loan customers are white. Further, studies have shown that payday stores tend to be found more often in minority communities and in states with large black populations.
In North Carolina, the state’s general assembly made payday lending illegal in 2001 and the attorney general forced out remaining payday lenders in 2006 after discovering they had been partnering with out-of-state banks to keep operating there.
Despite those efforts, according to the Center’s website, Regions Bank is making debt-trap payday loans at a minimum annual interest rate of 300 percent throughout the state and marketing the service directly to its checking account customers.
In a previous interview about banking fees levied against consumers, Kathleen Day, a spokesman for the Center, cited an example of a case in another state in which a bank levied so many overdraft fees against a customer’s account that it drained her assets. The bank then offered her a high-interest payday loan as a “bridge” until she could pay off the overages.
“The recent settlement agreement signed by 49 state Attorneys General and the five largest mortgage loan servicers exemplifies the importance of our engagement in matters affecting the consumers we serve,” the latest letter to Congress read.
“Although H.R. 6139 does allow our offices to engage in enforcement actions should we find violations of federal law, the bill prohibits us from enforcing state laws that were carefully designed to address problems in the local marketplace and significantly impairs our ability to respond in a targeted fashion to new abuses as they emerge. “
Basically, H.R. 6139 is an end-run around the newly created Consumer Financial Protection Bureau (CFPB), a watchdog agency designed to rein in abusive financial practices that primarily affect the less affluent.
The bill allows nonbank lenders to bypass the CFPB and state legislation to allow these firms to offer the high-cost loans nationwide and under the jurisdiction of the Office of the Comptroller of the Currency (OCC), essentially eliminating oversight.
The proposed legislation also would allow a double standard to existing in lending law.
Congress passed the Military Lending Act of 2007 in 2006, after the Defense Department discovered predatory lending practices targeted military members and their families, with interest rates that ran as high as 800 percent. The new law covered payday, car title and tax refund anticipation loans and capped interest rates at 36 percent.
H.R. 6139 would exclude military personnel and their families, but civilians would have no similar protection.
Jackie Jones, a journalist and journalism educator, is director of the career transformation firm Jones Coaching LLC and author of “Taking Care of the Business of You: 7 Days to Getting Your Career on Track.”