Along with 31 of their colleagues, Senators Patty Murray, Senator Maria Cantwell and Congressman Adam Smith have signed a letter calling on Consumer Financial Protection Bureau (CFPB) Director Richard Cordray to enact strong rules to protect Americans from being trapped in a cycle of debt by payday loans. Payday lending products carry a typical interest rate of 400 percent or more and are designed with terms borrowers often cannot meet. These loans are sold as a one-time quick fix, but in truth, the business model of payday lending depends on the borrower having to take out additional loans to cover basic necessities like food and rent.

“We applaud Senators Murray and Cantwell and Congressman Smith for their leadership on predatory lending and the CFPB’s efforts to protect consumers from these predatory products,” said Marcy Bowers, director of the Washington Statewide Poverty Action Network. “The federal government has taken steps to protect US Service members from these products; it’s only right that they take action to provide all Americans similar protections.” Congressman Denny Heck also sent a separate, equally strong letter.
As the Consumer Financial Protection Bureau (CFPB) considers new rules to rein in predatory practices in payday and similar types of lending, Senators Murray and Cantwell, along with 31 of their colleagues, expressed their support for the initial steps the agency has taken and urged the agency to issue the strongest possible rules to combat the “cascade of devastating financial consequences” that these high-priced loans often have on consumers.
In a letter to CFPB Director Richard Cordray, the Congressional delegation wrote: “We support the CFPB’s initial steps towards releasing a proposed rule and urge you to issue the strongest possible rules to end the damaging effects of predatory lending.
“Small-dollar, short-term loans with astronomical interest rates that pull consumers into a cycle of debt are predatory. These loans have high default rates, including after the borrower has already paid hundreds or thousands of dollars because of triple-digit interest rates. […] Even if consumers do not default on these loans, high interest rates, preauthorized payment methods and aggressive debt collection efforts often cause a cascade of devastating financial consequences that can include lost bank accounts, delinquencies on credit cards and other bills, and bankruptcy.”
After years of work at the state level, anti-poverty and consumer advocates are also urging CFPB to issue a strong national rule. During the 2015 legislative sessions in Olympia, the payday lending industry urged lawmakers in the State House and Senate to pass a new, expensive installment loan product. Advocates were quick to oppose these bills, calling the installment loan product much more costly to consumers than the existing payday loan product. The bills, which are nearly identical to a bill introduced in 2013, would, in fact, benefit some of our state’s payday lenders by allowing them to sidestep pending federal protections as well as protections passed by the legislature under the 2009 Payday Lending Reform law. Neither bill passed the legislature.

“Calling it a payday loan or an installment loan matters little when you are talking about a product that comes with triple-digit interest rates and catches consumers in a debt trap. This is true regardless of whether the product is sold locally or nationally,” said Bowers.

Bruce Speight, director of WashPIRG agreed, stating that the failed bill “would have created a product designed to trap Washington consumers in a cycle of high-cost, long-term debt. Failing on these legislative campaigns state by state, the payday industry is now trying to evade strong new rules that are being proposed by the Federal Consumer Financial Protection Bureau. This proposed rule is further evidence that now, with the Consumer Financial Protection Bureau, there is a consumer cop on the beat who is standing up for and protecting consumers in the financial marketplace.”
Statewide Poverty Action Network and WashPIRG applaud Senators Cantwell and Murray, as well as Congressmen Heck and Smith, for taking a stand for Washington consumers, in support of the CFPB’s efforts, and against predatory lending practices.