Congress is currently considering a bill that would give overarching control over payday lending protections to the federal government, but the attorneys general of 41 states and territories say this law should not pass.
The Consumer Credit Access, Innovation and Modernization Act is currently being weighed by federal lawmakers in the House of Representatives, but the top lawyers for a vast majority of states and territories say the law would be problematic, according to a report from Maryland Attorney General Douglas Gansler. This is because the CCAIMA would overarch existing state laws related to non-bank financial services providers, which includes payday lenders.
“This bill protects payday predators, among other lenders, not the credit consumers of Maryland,” Gansler said. “The consumers who are victimized by these devious lending practices are often those who can least afford it.”
Maryland, along with numerous other states, have their own payday lending protection regulations in place, and it believes that those rules have worked to help increase consumers’ insulation against these potentially harmful loans, the report said. For instance, the state caps interest rates on short-term loans, which has all but driven most payday lenders from operating within its borders. However, the federal bill would eliminate these protections, and allow payday lenders to once again do business there, and charge exorbitant rates.
The problem with the bill, in particular, is that it would allow lenders to extend borrowers any loan they believe the person to be capable of repaying, but does not set specific guidelines for establishing that ability, the report said. Further, it also exempts bills of a year or less from being regulated by the Truth in Lending Act, putting in place a cost metric instead.
The bill is now being considered by the House Committee on Financial Services, which is trying to determine whether it should go forward, the report said. If so, it could be sent to either the U.S. House of Representatives or Senate for a vote.
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While payday lending can be helpful to some borrowers who have a quick need for cash, in many cases, studies have found that those who seek them end up taking out another such line of credit to pay for the first one, creating a problematic cycle that can land them in large amounts of debt, which carries high interest rates.
Image: rink justice, via Flickr