Payday lenders are facing new federal regulations that will curtail their ability to reap huge profits off short-term, high-interest loans, but they’re trying everything to keep their predatory industry alive.
In the U.S., payday lenders are spending big bucks lobbying elected officials and contributing to their campaigns – and they’ve had some success. During his last election cycle, payday lenders contributed $126,000 to Senate Majority Leader Harry Reid (D-Nevada) as he defeated his Tea Party challenger Sharron Angle, though it is believed Reid actually received even more when taking into account contributions from executives and political action committees.
In total, the payday lending industry gave $1.5 million to lawmakers in 2009 – 2010 in an effort to curb legislation regulating the predatory payday loan industry.
Their investment saw limited success at the federal level; while no new legislation included caps on short-term interest rates, Congress did create a new Consumer Financial Protection Bureau which has oversight over the payday loan industry. Senator Reid was supportive of the bill.
But intense spending and lobbying by payday lenders isn’t just limited to Washington D.C. – many are making a play to prevent state governments from enacting consumer protection laws that will take a bite out of their profits. This legislative session, the payday lending industry has reportedly spent up to $4.4 million on lobbying efforts in the state of Texas in an attempt to kill a consumer protection bill. One lawmaker, Texas House Speaker Joe Straus, has accepted $311,000 in campaign contributions from the payday and auto title lending industry since 2009.
In Washington state, a consumer protection bill passed in 2009 limited the size of loans given out to a maximum of $700 and set a maximum number of times an individual could take out a loan over the course of the year – eight. But a few Washington state Senators are now looking to roll back those protections, and allow interest rates to jump up to nearly 200%.
Predatory payday lending is also an international problem. In the United Kingdom, payday lenders “have appointed a banking heavyweight to scrutinize their practices in the hope that they can avoid heavy government regulation.” The independent monitoring, which was set up through the industry’s trade body, will monitor its own members, but not those that do not belong to it. Unfortunately for consumers, Wonga – the best known short-term lender – is not a member of that particular trade body, and thus will not be overseen.
The country’s consumer minister, though, said that while she is pleased to see independent monitoring, “government and regulators are fully committed to clamping down on irresponsible practices by payday lenders.”
By EOI Intern Bill Dow