Tags: payday | loans | bank | industry

Battle Brewing Over Payday Loans

By    |   Tuesday, 01 Apr 2014 07:44 AM

The Senate Banking Committee's Subcommittee on Financial Institutions and Consumer Protection, chaired by Sherrod Brown, D-Ohio, held a hearing March 26 with the somewhat cryptic title, "Are Alternative Financial Products Serving Consumers?"

It turns out that "alternative financial products" means "payday loans." The hearing was fairly well-attended, and Republicans, who often don't show up for hearings on the state of the banking industry, were well-represented this time, evidently because a specific client interest was involved. To be fair, one of the Democrats who attended, Robert Menendez, D-N.J., sought to split his allegiance between both the critics of payday lending and the industry.

The issue was joined in the opening statements. Brown brought up a report by the Consumer Financial Protection Bureau (CFPB), led by former Ohio Attorney General Richard Cordray, which found that payday loans are often aggressively marketed and rolled over a number of times, so that fees can amount to $575 on a $500 loan. Readers might be surprised to learn that there are more payday loan locations than there are Starbucks and McDonald's combined. Brown declared that payday loans need to be more affordable and sustainable, have longer repayment terms and provide for the ability to pay down principal.

Pat Toomey, R-Pa., the ranking Republican, was also ready for battle. He found that there are people who lack access to banking services and that the "vibrant" market for alternative services is there to serve them, "yet we've got people in this town who want to shut off this access to credit in a number of ways — by regulation, by forbidding banks to provide services to payday lenders, by having the government provide the service or by setting the terms of the loans."

Republicans charged that the Department of Justice has been running an "Operation Chokepoint" to enlist banking regulators to use their regulatory power to get banks to withhold banking services from payday lenders.

The witness panel was quite well-balanced, with two representatives of the industry, two liberal critics and a neutral expert. The star of the hearing was Stephanie Klein, director of NetCredit Consumer Lending, a unit of Enova International, who has been developing and offering an installment alternative to payday loans in 12 states. She obviously did considerable homework, because several senators came prepared to ask her friendly leading questions.

The other industry witness was G. Michael Flores, CEO of Bretton Woods Inc., who has done studies sponsored by the industry and supports its legislative agenda.

On the liberal side were Nathalie Martin, a professor at the University of New Mexico Law School, and David Rothstein, who has been offering alternative products in cooperation with banks and credit unions in Cleveland that comply with the state's payday lending law, which prescribes a 36 percent cap on interest rates.

Nick Bourke, project director of the Safe Small-Dollar Loans Research Project of the Pew Charitable Trusts, has done a series of studies of the industry.

Each side has a vision that it plans to promote. The liberals are leveraging a report by the Inspector General of the U.S. Postal Service to offer an alternative product that would be consumer-friendly, whereas the industry is backing H.R. 1566, sponsored by Rep. Blaine Luetkemeyer, R-Mo., which would establish a federal charter administered by the Office of the Comptroller of the Currency to make it easier for the industry to offer its products nationwide and to compete against online lenders located offshore.

(Archived video and witness statements can be found here.)

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Robert-Feinberg
The Senate Banking Committee's Subcommittee on Financial Institutions and Consumer Protection, chaired by Sherrod Brown, D-Ohio, held a hearing March 26 with the somewhat cryptic title, "Are Alternative Financial Products Serving Consumers?"
payday,loans,bank,industry
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2014-44-01
Tuesday, 01 Apr 2014 07:44 AM
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