Saturday, October 20, 2012

States May Loose Control Over Pay Day Lenders

By Laura Whitley 
Regulation of pay day lenders vary from state to state. However a federal backdoor, may give the short term lenders a way to escape state regulations by obtaining federal charters.  The proposal is know as H.R. 6139: Consumer Credit Access, Innovation, and Modernization Act.   The legislation, sponsored by Rep. Blaine Luetkemeyer (R-Mo), would allow pay day lenders to be chartered by Comptroller of the Currency to operate.   This means even states laws that strictly limit loan amounts, their length and fees short term lenders can charge, consumers could loose their power. 

Attorney Generals in 40 states, including Illinois believe the proposal would undermine consumer safeguards.  In a joint letter to congressional leaders, they warned of the harm the federal law could cause.

“The legislation is nothing more than a shameless attempt by the payday lending industry to do an end run around states’ decades’ long battle to protect low-income families from becoming trapped in a downward spiral of debt,” Illinois Attorney General Lisa Madigan said.
Texas Attorney General Greg Abbott did not sign on to the letter. Which likely comes as little surprise to consumer advocates who have criticized Texas law makers for years for failing to enact meaningful short-term loan consumer protections.  The Texas Fair Lending Alliance, a coalition of organization and individuals, recently formed to end abusive payday and auto title loan outfits in Texas. Currently the organization is promoting it's 500% Interest Is Wrong Campaign.
Still advocates of H.R. 6139 call it a “solution” to a patchwork of laws across the country.
“The demand for affordable credit is significant and growing while available credit alternatives are shrinking,” testified Mary Jacksonbefore a senate committee hearing in July.  Jackson is a tenured employee of Cash America International, 
What pay day lenders and consumers consider “affordable credit” may be very different things.
“Once I took out the first loan, it felt like I was forced to take another to pay off the first and then another and then another,” said one former short term loan borrower.

Annual percentage rates topping 1000%, lengthy loan terms, and high renewal fees hallmark some of industry tactics some state laws are designed to stop.  According to the Texas Fair Lending Alliance, in Texas the average payday borrower pays $840 for a $300 loan.
“The bill threatens to turn back these protections by giving these non-bank lenders the ability to obtain a federal charter that would allow them to sidestep more stringent state laws,” the letter from attorneys general said.
The backers of the federal proposal say consumers need more options.  The legislation does include usury limits and civil penalties. 
If you or someone you know is facing difficulty paying off payday, short term loans, or other debt call The Law Office of Gerald C. Moton today 210-841-5728 or

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