Congress considers going easy on predatory lenders

The payday lending industry is pressing its friends in Congress to repeal rules that shield borrowers from short-term loans that trap them in debt at interest rates of 400 percent or more. The rules were issued last year by the Consumer Financial Protection Bureau in a last gasp of consumer financial protection before President Trump appointed Mick Mulvaney as its new chief.

The new administration is openly hostile to the rules — which become effective in August 2019 — and is clearly looking for ways to undermine them. Meanwhile, bills introduced in both the House and the Senate would repeal the rules outright, opening the door for the return of lending practices that make working-class families poorer.

The payday industry advertises itself as a source of “easy” credit for workers who run short of money before their next paycheck and take out loans that are typically supposed to be repaid within two weeks. But there is nothing “easy” about this arrangement, as the consumer protection bureau showed in a study of more than 12 million loans. Among other things, the research revealed that the industry relies on people who can almost never repay on time, which usually means they borrow over and over again.

Among the study’s findings: Eighty percent of payday loans were rolled over or renewed within two weeks; three out of five loans were made to borrowers who paid more in fees than they borrowed; four out of five borrowers either defaulted or renewed a loan over the course of a year; and one in five payday borrowers — including elderly people on fixed income payments — remained mired in debt for the entire year.

Last year, the bureau issued commonsense rules for loans that last 45 days or less in order to keep financially fragile borrowers from being driven into penury. The rules require payday lenders to determine whether a borrower can pay off the loan and still meet living expenses. In effect, the rules allow someone to borrow $500 without that test — as long as the loan does not trap the customer in debt for an extended period.

Payday lenders say the rules would dry up credit, but their more likely concern is a cut in their profit margins.

As they press for federal legislation to overturn the rules, the lenders have been lobbying state legislatures to expand their right to issue payday loans for longer than 45 days, loans that would not be covered by the regulations.

The industry spent lavishly in Florida to pass a law that will allow an annual rate of nearly 300 percent on a three-month loan of $1,000, according to an analysis by the Pew Charitable Trusts.

The lenders are blocking bills restricting the industry in other states, including Ohio, where borrowers typically pay an annual rate of 591 percent — the highest payday loan costs in the United States.

On the other hand, a model bill that would make small-dollar lending safe and affordable is being considered in Hawaii, where borrowers have been ravaged by high fees and long-term indebtedness. And the struggle over this issue underscores that state usury laws — like those in 15 states — offer the surest protection against debt trap lending.

Meanwhile, at the federal level, if members of Congress repeal perfectly reasonable consumer-protection rules, voters should make them pay a price for picking the pockets of struggling Americans to line the pockets of the lenders.