It’s no secret that in communities of color, payday loan companies are everywhere. Easy money lenders know Black and Hispanic Americans are paid the least, making it harder for them to make ends meet between paydays. They see us coming.
Advocates of this type of predatory lending argue that they are providing a valuable service by offering help to those who could not get access to money in other ways, due to poor credit. But if their intentions are so good, why did Republicans try so hard to protect them from reasonable government regulations.
The L.A. Times did an excellent piece calling out GOP lawmakers who are voting this week on a bill to roll back proposed laws to regulate payday and title lenders from taking unfair advantage of consumers. In the 589-page Financial Choice Act, there is a clause on page 403 that says federal authorities “may not exercise any rulemaking, enforcement or other authority with respect to payday loans, vehicle title loans or other similar loans.”
The important but poorly placed wording can have future repercussions for future generations of low income earners. And because of the bill’s length, it is unlikely that most GOP lawmakers have read it, or that it even matters to them.
The Financial Choice Act was authored by Rep. Jeb Hensarling of Texas, Chairman of the House Financial Services Committee. Hensarling has received millions in campaign contributions in exchange for his support of high interest lenders.
Payday loans are ideally intended for short-term use. The problem is the interest rates are so high and the terms are so short that borrowers frequently find themselves unable to repay the loan in full. When that happens, a borrower will repay the loan and immediately sign to take out another or take out a second loan, and juggle both to keep the payments current. It’s an endless cycle that traps borrowers and ruins credit. With title loans, the borrower put up their vehicle as collateral. If the loan is not repaid on time, the borrower could lose their car.
According to the Consumer Financial Protection Bureau, more than 19 million U.S. households resort to payday loans, and 20% end up saddled with 10 or more loans, one after the other. With annual interest rates as high as 400%, consumers become trapped in a cycle of debt with no end in sight.
The CFPB was formed under President Obama in an attempt to reign in practices of payday lenders and other loan sharks. But now Republicans want to do away with consumer protections, like they are trying to do with their version of the health care bill.
It’s not hard to see why Republicans buried this provision and hoped no one would notice. This, like so many other pieces of legislation, boils down to getting paid by lobbyists. This is the sole motivation behind enacting laws that hurt the non-rich and non-white. The deeply buried provision that favors predatory lending may be hard to find, but the behavior of GOP lawmakers is predictable. Just follow the money.