O’Connor: Payday loan act is a payday for somebody

Brian J. O'Connor
Detroit News Finance Editor

More Democrats are taking another swipe at the Consumer Finance Protection Bureau, this time coming to the rescue of that downtrodden and unfortunate group of billionaires known as payday lenders. The leader of the effort, chairwoman of the Democratic National Committee Debbie Wasserman Schultz, thinks it’s just fine and dandy to give desperate borrowers interest rates of 312 percent ’cuz that’s what her campaign contributors do in Florida, where Burmese pythons rule the Everglades and snakes of an entirely different kind slither in to donate to members of Congress.

Naturally, I am not suggesting that anything as unseemly as filthy lucre would intrude on the decision-making process of Rep. Wasserman Schultz and her colleagues, aside from the $13 million that the nonprofit Americans for Financial Reform found payday lenders have spent since 2013 on lobbying and campaign contributions to 50 lawmakers. In the last election cycle, according to the Miami Herald, payday lenders contributed $31,250 to — and prepare to be shocked here! — Wasserman Schultz.

OK, so you’re not shocked.

Little Debbie’s crumb cakes

That’s understandable, since this isn’t the first whack Wasserman Schultz and other Democrats have taken at the CFPB. You may recall in November when, just before the Thanksgiving recess, predatory lenders got an early Christmas gift in the guise of the “Reforming CFPB Indirect Auto Financing Guidance Act.”

The “reform” was to bar the CFPB from issuing rules to lenders to prevent overcharging on auto loans that’s been found to disproportionately harm minority borrowers. In the past few years, it’s been a big enough problem that the bureau has slapped Ally Bank with a $98 million settlement, involving 235,000 minority borrowers, along with a similar $24 million settlement with Honda’s auto lending arm and an $18 million settlement with Fifth Third Bancorp.

That didn’t stop Wasserman Schultz and every House Republican from trying to foil the CFPB’s efforts, with an assist from Michigan Democrats Dan Kildee, Brenda Lawrence and Debbie Dingell. Auto buyers lucked out when the bill didn’t make it out of the Senate.

This time it’s all but one of Wasserman Schultz’s fellow representatives from Florida in the U.S. House backing her up on a move that would put a two-year hold on the bureau’s payday lending regulations, and would allow state laws to overrule any new federal rules on short-term borrowing. It’s called the “Consumer Protection and Choice Act.” Why, I don’t know. Maybe “Cynically Disenginous Payday Lender Protection Scam” was taken.

It IS a choice to go broke

The wonderful Florida law these folks want to protect results in effective annual interest rates of 312 percent. The proposed CFPB rules would put a big dent in that by requiring lenders to make sure borrowers could repay short-term loans in 45 days. It also has a 60-day cooling off period between loans, and would add a 60-day ban to keep any lender from making a loan to a borrower who had taken out three loans in a row. In Florida now, 76 percent of all payday loans are rolled over in two weeks, according to Americans for Financial Reform, and 85 percent of all loans are part of a string of seven or more payday loans, which is how the average $250 payday loan gets to an interest rate of more than 300 percent.

That’s not a bad thing, a spokesman for Wasserman Schultz told Huffington Post in a statement, saying that thanks to her work as a state legislator, the Florida law, “Has sharply reduced the need to go to bad actors, curbed predatory practices and created standards and protections for low-income borrowers.”

Actually, no. If anyone’s interested in a set of real rules for payday loans, let’s take a quick look at the new rules under the Military Lending Act, which applies to payday loans issued by any FDIC-insured institution. The Defense Department took action when the debts of soldiers, sailors and airmen got so bad it become a security issue because indebted service members were at risk of being bribed on overseas assignments. The rules cap interest rates at 36 percent annually, including fees, and rollovers are banned.

Without rules like those or the ones proposed by the CFPB, the only payday involved in short-term, high-interest rate loans is the big one for the lenders. And, it seems, for some campaign coffers.

Twitter: @BrianOCTweet

Brian O’Connor is author of “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”