H.R. 6139: Payday Lender Carve-out Will Undermine Consumer Financial Protection Bureau and States

Published: August 27, 2012

At the root of HR 6139 and similar legislation is an effort by non-bank lenders to circumvent new federal oversight and undermine consumer protections recently provided under recent Wall Street reforms. 

HR 6139 will needlessly move federal jurisdiction over non-bank financial service providers from the newly created Consumer Financial Protection Bureau (CFPB) to the Office of the Comptroller of the Currency (OCC), thus negating recent efforts to rein in reckless and abusive practices like those that ignited the current economic crisis.

If HR 6139 or similar legislation is approved, non-bank lenders will be able to bypass the CFPB and stronger state laws to offer high-cost loans and services nationwide and even through the Internet.  Moreover, it will set a precedent for many other companies to also seek similar carve-outs from the CFPB and stronger state laws.

A Broken Promise to Consumers

Less than a year after the CFPB has been fully operational, HR 6139 would backtrack on Congress’ promise to consumers: protect them from reckless and abusive lenders.

The CFPB was created for the purpose of protecting families from the very financial products marketed and sold by the companies covered in HR 6139. 

Instead, under HR 6139 non-bank lenders will be regulated by a historically more lenient agency that actively obstructed states from reining in reckless subprime lenders and fell asleep at the wheel during the mortgage crisis.

A Federal Charter to Circumvent Stronger State Laws

Several states across the country have adopted strong consumer protections that bar the abusive loans and predatory practices HR 6139 and similar legislation will allow nationwide. Since 2008, voters in Arizona, Ohio, and Montana, have overwhelmingly approved limits on 400% interest payday loans and products offered by similar non-bank financial providers.  But HR 6139 will override these laws and put weaker or no protections in their place. 

Carve-out a special provision for the same lenders the Department of Defense found harmful to military families

After a 2006 Department of Defense report that found predatory lending practices targeted military members and their families, a bipartisan effort led to the enactment of the Military Lending Act of 2007. This law covered payday, car title and tax refund anticipation loans and also put an end to interest rates that ran as high as 800 percent.  Interest rates on these loans were capped at 36 percent.

Legitimizes a Two-Tier Financial System with More Predatory Loans

Under the guise of access to credit for under-served communities, HR 6139 will legitimize a broad range of defective financial products and services nationwide, including 400% interest payday and car title loans, installment lenders, prepaid-card issuers, check cashers, and others that are known to prey on low-income and minority communities and have been proven to do more harm than good to our working families, seniors, and veterans.

In essence, HR 6139 and similar legislation will allow a two-tier financial system to flourish unchecked nationwide -- a system that relegates low- and moderate-income borrowers to higher-priced financial products and services or leaves them with no responsible credit options available.

As the OCC noted during recent testimony, “H.R. 6139 raises serious consumer protection, compliance, and safety and soundness issues by creating a new federal charter for companies concentrating on products and services most prone to abuse and that are most often targeted to minority populations, low-income neighborhoods, and communities with high concentrations of our military service members.”

The last thing those communities and families need in a time of economic uncertainty is another set of abusive lenders to lead them deeper into debt and worse financial problems.