Bonamici, Cummings Introduce Legislation to Stop Abuse, Fraud in Payday Lending

Apr 21, 2016
Press Release

Bonamici, Cummings Introduce Legislation to Stop Abuse, Fraud in Payday Lending

New Report Finds Bank Fees Add Hidden Costs to Loans, Contribute to Cycle of Debt


WASHINGTON, DC [04/21/16]–Today, Reps. Suzanne Bonamici (D-OR) and Elijah E. Cummings (D-MD) introduced legislation to protect consumers from predatory lending practices and crack down on some of the worst abuses in the industry.

This week, the Consumer Financial Protection Bureau (CFPB) released a report about online payday loans. The report found that many online lenders use automatic bank withdrawals from consumers’ accounts for loan repayment. Approximately half of the accounts studied resulted in overdraft or non-sufficient funds from automatic withdrawals and cost those borrowers an average of $185 in bank fees.

In an effort to reign in predatory practices that trap borrowers in a cycle of debt, Bonamici and Cummings introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act of 2016. The bill allows consumers to stop automatic bank withdrawals from payday lenders, requires that lenders abide by the laws of the state in which they are lending, and bans third party “lead generators” that collect applications and auction them to payday lenders. You can read more about the legislation here.

“Payday lenders can trap consumers in exorbitant loans that lead to increasing debt,” said Bonamici. “In Oregon, I’ve met with workers who are forced into payday loans simply to pay their rent and then remain stuck in a cycle of debt. Even though Oregon has some of the most aggressive laws in the country to address predatory payday lending, online and offshore lenders are using loopholes to get around those laws. They often pay lead generators and anonymous third parties to promote their predatory products. This must be stopped, and the SAFE Lending Act will provide additional tools to regulate these activities and protect consumers.”

“Payday lenders routinely prey on hardworking Americans struggling to make ends meet by charging excessive interest rates that trap them in an endless cycle of debt,” said Cummings. “The SAFE Lending Act of 2016 will empower consumers, respect States’ rights, help prevent shadow lending, and give State and Federal authorities the tools necessary to combat rogue Internet-based lenders.”

“Payday lenders have been migrating from physical storefronts to the Internet, taking their worst practices with them and posing new challenges for regulators” said Gynnie Robnett of Americans for Financial Reform. “This legislation will make it easier for the states to enforce their laws while bolstering the effectiveness of the Consumer Financial Protection Bureau’s crucial efforts to crack down on an industry whose business model is to advertise a form of ‘help’ that consistently makes things worse, trapping people in long-term high-cost debt.”

“The SAFE Lending Act will stop payday lenders from using fake checks to make unauthorized debts from consumers' bank accounts, and will close loopholes that online lenders use to make unaffordable loans that trap families in a cycle of debt,” said Lauren Saunders of the National Consumer Law Center.

Original cosponsors of the SAFE Lending Act are: Reps. Earl Blumenauer (D-OR), Judy Chu (D-CA), Rosa DeLauro (D-CT), Donna Edwards (D-MD), Raul M. Grijalva (D-AZ), Eleanor Holmes Norton (D-DC), James P. McGovern (D-MA), Jan Schakowsky (D-IL), Mark Takano (D-CA), and Debbie Wasserman Schultz (D-FL). Sens. Jeff Merkley (D-OR) and Tom Udall (D-NM) introduced the legislation in the Senate earlier this month.

The SAFE Lending Act of 2016 would:

·         Give Consumers Control over Their Own Bank Accounts by preventing third parties from gaining control of consumers’ accounts through remotely created checks (RCCs). It also allows consumers to cancel a debit in connection with a small-dollar (payday) loan to prevent an Internet payday lender from emptying a checking account;

·         Close Loopholes and Create a Level Playing Field In State Usury Law Enforcement by requiring all lenders, including banks, to abide by state rules governing small-dollar, payday-like loans. Only states, not the federal government, have usury laws; and

·         Ban Lead Generators and Anonymous Payday Lending, including banning anonymously registered websites offering payday loans and “lead generators” who falsely identify themselves as payday lenders to auction applications.

The SAFE Lending Act has been endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Federation of America, Consumers Union, National Consumer Law Center (on behalf of its low income clients), Consumer Action, U.S. PIRG, and Conference of State Bank Supervisors.

114th Congress