Consumer Lending Reform Efforts Gain Allies, Support for Enactment

Charlene Crowell | 4/24/2010, 11:46 a.m.

(NNPA) - As many 2010 state legislative sessions begin to wind down, efforts at the federal level are gathering momentum on a key abusive financial practice that costs borrowers millions of dollars each year: payday lending. Just a few days ago, U.S. Senator Kay Hagan (D-NC) introduced the Payday Lending Limitation Act of 2010.

In a news release, Sen. Hagan remarked, too many hardworking individuals have fallen victim to payday lending. Payday lenders prey upon folks who find themselves in need of a quick loan. By reining in payday lenders, we will protect consumers from racking up endless, long-term debt that can ultimately cause a family to declare bankruptcy.

Co-sponsored by Senators Dick Durbin (D-IL) and Charles Schumer (D-NY), the bill represents the latest effort to unify regulation of short-term, small dollars loans across the country by offering key provisions. To protect borrowers out of long-term, high-cost debt, they would be limited to six, two-week loans (or no more than 90 days of indebtedness) in a 12-month period.

This provision is modeled after a rule by the Federal Deposit Insurance Corporation (FDIC) which states that giving these loans to borrowers for stretches longer than 90 days is harmful for the consumer and risky for the lender.

Also in recent days, the White House Council of Economic Advisors held a conference call on the importance of economic reforms for communities of color, hard-hit by the recession. According to Cecelia Rouse, a member of the advisory group, President Obama's goal is to address a wide range of practices from payday lenders to check cashers and other unregulated lenders.

In response, the payday industry is fighting hard to prevent strong rules that limit abusive lending. In an April 21 report published by USA Today, Steven Schlein, a spokesperson for the Community Financial Services Association was quoted as saying, we don't think we should be regulated by the federal government. Generally our battles have been in the states. This is a federal threat and we take it seriously.

Two days earlier, Terri Guzman, Executive Director of the Consumer Rights Coalition, another industry supported group, guest blogged in the Washington-insider publication, The Hill. In part, Ms. Guzman wrote, "The best way to truly protect consumers is to let them make their own financial choices among a wide variety of options. Let's focus on fixing Wall Street and the problems that led to this country's financial crisis, without punishing those of us on Main Street."

Guzman is right on one point: Wall Street does need reform. But wouldn't it be better to address what is wrong on Main Street and Wall Street at the same time? Don't the decisions emanating from the world's most dominant financial district affect communities too? The genesis for foreclosures that today plague much of America today began with Wall Street.

It is a false choice to suggest an "either-or" approach is what America needs. In 2010, we have the opportunity to reset the playing field and address a range of lending ills that together have caused a deep and widespread recession. People in financial distress often have several problems, not just one. People trapped in payday debt deserve the same protections as those that receive other types of costly loans.

Commenting on the new legislation, Mike Calhoun, President of the Center for Responsible Lending said, "This bill would stop unscrupulous lenders from charging 400 percent interest on loans, especially during these hard economic times."

Continuing he added, "Sen. Hagan fought for these protections when she was in the North Carolina senate and is now bringing this common sense approach to the federal level."

In recent years, common sense has been absent in many lending decisions. Had more sensible lending standards been more widespread, it is doubtful that a global financial crisis would have surfaced and the phrase, "too big to fail" would never have been coined.

With consumer-focused reform building support from Pennsylvania Avenue and Capitol Hill, perhaps 2010 will be the year that fair lending and transparent financial practices reach all Americans.

Charlene Crowell is the Center for Responsible Lending's Communications Manager for State Policy and Outreach. She can be reached at Charlene.crowell@responsiblelending.org