Payday Lenders May Avoid U.S. Oversight

Los Angeles Times
March 11, 2010
Puzzanghera, Jim

The bipartisan bill being crafted by senators to create a consumer financial protection agency leaves payday lenders largely free from the proposed regulator's oversight. This exemption will allow payday lenders in California and 34 other states to remain under state governance, which often means borrowers pay up to 460 percent in annual interest. In California, for example, lawmakers for the past two years have considered a measure that would expand the maximum payday loan size to $500 from its current limit of $300 -- which consumer groups say would only drive borrowers even deeper into debt. Consumer advocates had hoped for a new federal watchdog that could seriously restrict or outlaw payday loans; and they petitioned for consumer protection that extended beyond big banks to mortgage brokers and payday lenders. The new draft includes the entity as part of the Federal Reserve and gives it the power to write rules for any and all financial products. However, the agency would only be able enforce non-bank rules against mortgage firms and would need authority from a council of federal banking regulators in order to enforce rules on payday lenders. All attempts by Congress to cap the payday loan interest rate at a federal level have been unsuccessful, but some states have set limits on annualized interest rates. Pedro Morillas, consumer advocate for the California Public Interest Research Group, said the best solution would be a federal agency with enforcement power over payday lenders. "Payday lenders are fighting so hard … because they're afraid that the agency will confirm what consumer groups have been saying for years, which is payday loans are bad for consumers."
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