Cummings, Merkley, Bonamici Introduce SAFE Lending Act to Protect Consumers from Predatory Practices in Payday Lending
Today, Senator Jeff Merkley, along with Congressman Elijah Cummings (D-MD) and Congresswoman Suzanne Bonamici (D-OR) introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act. The SAFE Lending Act would crack down on some of the worst abuses of the payday lending industry, particularly in online payday lending, and protect consumers from deceptive and predatory practices that strip wealth from working families.
Under Trump Administration leadership, the Consumer Financial Protection Bureau (CFPB) reversed course on national rules slated to go into effect this year instituting consumer protections from payday loan predators. Without strong CFPB protections at a national level, state laws protecting consumers will be all the more important.
“In recent years, the CFPB has turned its back on consumers being targeted by payday predators,” said Cummings. “Our constituents, and consumers everywhere, deserve protection from payday lenders and rogue internet-based lenders who prey on hardworking Americans struggling to make ends meet. The SAFE Lending Act will empower consumers, respect States' rights, and work to end the practice of charging excessive interest rates on these loans that trap consumers in an endless cycle of debt."
“For too long, predatory lenders have taken advantage of consumers who experience periods of financial instability, pulling families and individuals into a cycle of debt they can’t escape,” said Bonamici. “Instead of fighting predatory lending, the Trump administration is easing rules designed to hold payday lenders accountable. Congress must stand up for consumers by passing the SAFE Lending Act. We cannot allow predatory lenders to exploit Oregonians and others across the country during times of financial need.”
“Before we kicked the payday lenders out of Oregon, I saw up close how payday lenders trapped families in my blue collar neighborhood in an inescapable vortex of debt,” said Merkley. “The Consumer Financial Protection Bureau’s job is to protect consumers, not to protect predatory payday lenders. We need to stop the Trump Administration’s plot to strip away important consumer protections, protect state laws like Oregon’s, and create guardrails to prevent consumers from entering into a cycle of never-ending debt.”
In recent years, many states have put in place tough laws to stop abusive lending, but payday predators have continued using online lending to prey on consumers. Internet lenders hide behind layers of anonymously registered websites and “lead generators” to evade enforcement. Even when the lending violates the law, abusive payday lenders can empty consumers’ bank account before they have a chance to assert their rights. Payday lenders with access to consumers’ bank accounts are also issuing the money from loans on prepaid cards that include steep overdraft fees. When these cards are overdrawn, the payday lender then can reach into the consumer’s bank account and charge the overdraft fee, piling on further debts.
The SAFE Lending Act of 2019 puts in place three major principles to make the consumer lending marketplace safer and more secure:
1. Ensure That Consumers Have Control of their Own Bank Accounts
- Ensure that a third party can’t gain control of a consumer’s account through remotely created checks (RCCs) – checks from a consumer’s bank account created by third parties. To prevent unauthorized RCCs, consumers would be able to preauthorize exactly who can create an RCC on his or her behalf, such as when traveling.
- Allow consumers to cancel an automatic withdrawal in connection with a small-dollar loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.
2. Allow Consumers to Regain Control of their Money and Increase Transparency
- Require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Many individual states currently have much tougher laws than the federal government. There is currently no federal cap on interest or limit on the number of times a loan can be rolled over.
- Increase transparency and create a better understanding of the small-dollar loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau.
- Ban overdraft fees on prepaid cards issued by payday lenders who use them to gain access to consumers’ funds and to add to the already exorbitant costs of payday loans.
- Require the CFPB to monitor any other fees associated with payday prepaid cards and issue a rule banning any other predatory fees on prepaid cards.
3. Ban Lead Generators and Anonymous Payday Lending
- Some websites describe themselves as payday lenders but are actually “lead generators” that collect applications and auction them to payday lenders and others. This practice is rife with abuse and has led to fraudulent debt collection.
- The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.
The SAFE Lending Act has been endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, Consumers Union, Greenlining Institute, Main Street Alliance, National Association of Consumer Advocates, National Consumers League, People's Action, National Rural Social Work Caucus, Public Citizen, Southern Poverty Law Center, UNITE HERE, Unidos US, and USPIRG.