North Dakotans recently marked the one-year anniversary of the Consumer Financial Protection Bureau’s issuing a draft rule aimed at reining in the worst abuses of payday and other high-cost debt trap lending schemes.
Predatory lending and payday loan companies prey on the most poverty-stricken populations living paycheck to paycheck and in need of emergency funds to put out the many "fires" they experience on a daily basis. Once given a payday loan, people are sucked into a cycle of debt that causes financial failure, creates bad credit, increases bills, collections, insufficient funds fines, and defaults. These court cases and items stay on their record for years to come.
Payday companies also tap directly into people's bank accounts, making electronic withdrawals so they are paid first.
In the year since the draft payday rule's issuing, the Consumer Bureau has been busy enforcing the law protecting borrowers. But, even though such protections are needed more today than ever in North Dakota, where payday loans carry interest rates averaging 487 percent, making them impossible to ever pay off or the customers pay back the loan three times over, Congress has decided to do all it can to protect payday lenders.
The U.S. House of Representatives recently passed the so-called CHOICE Act, essentially dismantling the protections put in place after the last recession and bank bailout in order to head off the next one. North Dakota’s lone representative, Kevin Cramer, supported this legislation.
This bill, among other things, specifically bars the Consumer Bureau from regulating payday lenders, who drain millions of dollars in fees from our communities each year. That means the draft rule would never go into effect. The bureau also would be barred from enforcing existing laws, including laws put in place by initiated measure in our neighbor states of Montana and South Dakota.
I shudder to think how much money was spent convincing members of Congress to include a special carve-out for a publicly reviled industry in a bill that they will have to publicly support. Take a trip to payday lender storefronts sitting right outside of tribal lands, or in low-income neighborhoods in Bismarck, to see how these places operate and tell me, should they be above the law?
Since its inception, the Consumer Bureau has done what Congress created it to do, enforcing existing laws returning $11.9 billion from banks and lenders that broke the law to 29 million consumers. Some of the unfair practices reined in by enforcement by the Consumer Bureau include:
• Payday lenders who collected debts that consumers don’t legally owe.
• Payday lenders who engaged in robo-signing and illegally overcharged military service members.
• Debt collectors that used illegal, abusive and harassing tactics to collect debts consumers owed.
In addition to special payday lender protections, the CHOICE Act removes the Consumer Bureau’s authority to stop other lenders, like credit card companies and mortgage brokers, from pushing abusive products on their customers or tricking them into paying for things they can’t use, don’t want and don’t need.
In addition to gutting the Consumer Bureau, the CHOICE Act,
• Repeals a rule to require investment advisers to act in the best interest of their clients, which would put $17 billion back in the pockets of retirement savers.
• Allows banks to charge more to use a debit card, costing more than $6 billion per year.
• Makes it easier for companies to win in court when charged with wrongdoing.
It seems profoundly foolish to eliminate safeguards against the catastrophic consequences of a financial crisis. It is also wrong to place such severe restrictions on regulators’ ability to protect the public from exploitation in their everyday interactions with the financial system.
North Dakotans know when we’re being fooled. While we can’t change Cramer’s vote, we can call on Sens. John Hoeven, R-N.D., and Heidi Heitkamp, D-N.D., to stop the so-called CHOICE Act dead in its tracks when it arrives in the Senate.