Federal Government Banned Consumer Protection Rule Against Payday Lenders | Local News

A federal rule that would have provided an additional level of consumer protection against payday lending practices has been proposed to be canceled on the grounds that it would reduce access to short-term loans for consumers.

In the past, cities in Idaho have attempted to protect citizens from payday loans which often trap consumers with extremely high interest rates. Idahoans paid nearly $ 31 million in overdraft bank charges for payday loans and more than $ 65 million in fees for securities lending in 2017, said Ellen Harnick, head of the Western Office of the Center for Responsible Lending in Oakland.

“It’s $ 96 million that is being sucked into the wallets of Idaho families,” she said. “It comes from the monthly budgets of people who apply for these loans, almost invariably, people who can’t afford them. “

The rule would have required payday lenders and securities lenders to take additional action to determine the likelihood that a customer could repay the loan in full. The titans of the industry say that repealing the rule does not mean that their businesses will be unregulated, and that it would be “absurd” to lend to people who could not pay them back.

“We are regulated as strictly as any bank,” Moneytree CEO Dennis Bassford told Idaho Press.

Industry associations say setting strict rules for licensed payday lenders will only limit consumers’ options for short-term loans.

Some states have put in place rate caps and other lending restrictions to reduce abusive lending practices.

Idaho has some of the highest interest rates on payday loans and securities in the country, with an average interest rate of 652%, according to the 2019 Center for Responsible Lending. The data.

This potential consumer debt trap has not gone unnoticed by Idaho lawmakers. In 2014, the Legislative Assembly passed a bill amending Idaho Payday Loans Act to include new protections for borrowers.

Caldwell City Council set out to reduce the number of payday lenders in the city two years ago by approving an ordinance to exclude payday lenders and commercial property title lenders without council approval. Pre-existing lenders were not affected, but the change limited the number of lending businesses along Caldwell Streets.

Caldwell Mayor Garret Nancolas said the measure was put in place to help protect and educate the citizens of Caldwell about the potential negative effects of taking out a payday loan or title.

“It seemed like for a while there was another payday loan spot popping up all over the place,” he said. “We thought it was in the best interest of the citizens.”

The number of payday lenders in Idaho has declined slightly. Registered payday loan companies grew from 174 in 2016 to 154 in 2018. Consumer complaints fell from five in 2016 to 11 in 2018, according to the Idaho Department of Finance.

Often, complaints relate to a misunderstanding of loan terms, said Anthony Polidori, head of the department’s consumer finance office.

The Ministry of Finance has online documents outlining borrowers’ rights, including lists of alternative options that you might want to consider, such as loans from banks, employers, local government programs, or members. of the family.

Bassford, the CEO of Moneytree, was born and raised in Idaho and attended Boise State University. Although their company is based in Seattle, the Bassford family continues to donate to Idaho state government candidates – nearly $ 125,000 since 2002, according to campaign finance reports.

“Our business can be affected by government,” Bassford said. “For years we have been expressing our freedom of expression for people who have our best interests in mind.

Moneytree has 13 locations in Idaho, according to its website, including locations in Boise, Garden City, Meridian, Nampa, and Caldwell.

In the 2018 election, Dennis, Robin, Sara and David Bassford contributed separately, a combined $ 20,000 to the campaign of newly elected Governor Brad Little. During a decade of campaigning from 2004 to 2014, former Governor Butch Otter received nearly $ 63,000 in campaign donations from the Bassford family.

Gov. Brad Little was unable to schedule an interview to discuss donations and payday loans in Idaho prior to the publication.

In 2016, the US Consumer Financial Protection Bureau drafted a rule requiring payday lenders to “reasonably determine that the consumer has the ability to repay the loan” before lending, preventing them from capitalizing on poor consumers.

The policy was scheduled to start on January 16, 2018, with a full compliance date of August 2019 – but on the day it goes into effect, the office reconsideration announced.

The office, established as a national financial watchdog, suffered a battle for control last year following the resignation of the director appointed by former President Barack Obama.

Amid protests, President Trump appointed former Republican Congressman Mick Mulvaney – now acting White House chief of staff and head of the Federal Office of Management and Budget – acting director of the office.

He was replaced in December 2018 by Kathleen Kraninger, her appointment passing by just a voice in the Senate. Kraninger, formerly of the Bureau of Management and Budget, last month released the proposal to lift some of the restrictions on payday loans.

“People say these loans are necessary and people rely on them to ‘access credit’,” Harnick, of the Center of Responsible Lending, told the Idaho Press. “They say it is a useful function, when in fact we know that this high cost debt, when used to finance the running expenses of daily living, is not sustainable.”

Payday lenders who are gaining political influence, she said, are “the backdrop against which these changes are being made.”

Bassford with Moneytree said one of the biggest misconceptions he’s seen about repealing the rule is that the change leaves the industry unregulated.

“I have been regulated directly by the Consumer Financial Protection Bureau since 2012 and have passed a couple of exams by it,” he said. “Just because this rule is being changed does not mean that we are a highly regulated industry.”

The rule itself – which would have required lenders to consider the likelihood that a borrower could repay the loan – would have been difficult to comply with, Bassford said.

“We are like anyone giving credit. We are constantly challenged to try to find the right balance in terms of who to lend to,” he said. “Why should I lend money to people who can’t pay it back?” Why would I need these federal government requirements? “

The Community Financial Services Association of America, which represents payday lenders, applauded the repeal of the rule as a “good first step” to address “critical loopholes” in government regulation of the payday services industry.

A statement from its CEO said the rule itself was based on a “partisan political agenda” and the Consumer Financial Protection Bureau ignored the entry that the rule would limit access to credit.

It is not the approved lenders that the federal government should target; these are the illegitimate lenders, said Dennis Shaul, CEO of the association, in a statement.

Bassford, who sits on the association’s board of directors, said online lenders pose a greater threat to consumers because they could operate overseas – disregarding federal and state laws.

“A lot of the lending right now is really done online, by people who don’t have an office in Idaho, and sometimes you don’t even know where they’re operating,” he said. “They will not obey any of these state laws.”

Harnick said payday lenders benefit from high rates and “trapping” people who cannot afford to both pay off the loan and cover basic expenses, leading them to take out another loan.

The cycle is called the “debt trap” for consumers.

In some cases, payday lenders have electronic access to borrowers’ bank accounts. When the borrower’s payday arrives, lenders can directly access accounts and withdraw amounts owed, which can result in overdraft fees.

No federal law places a cap on the maximum interest rate on payday lenders, but states do have the option of doing so. Sixteen states have voted and put in place a rate cap on short-term lending companies to reduce predatory rates. Idaho is not one of them.

The proposed and withdrawn federal rule would not have imposed a price cap, but would have done the best thing for consumer protection, Harnick said.

“The rule would disrupt the process enough to end the debt trap,” she said. “If that took effect, it would have a real beneficial impact, especially in places like Idaho where the rates are so high.”

Trent Wright, president and CEO of the Idaho Bankers Association, said demand for small credit loans is high, but traditional banks have limited options to support customers with those needs.

“This demand cannot be regulated by government action that restricts the supply of credit to meet demand,” Wright told Idaho Press in an email. “If banks and other licensed providers are unable to offer short-term credit, consumers will be forced to meet their needs through ‘informal’ sources of funds.

Currently, banks have few channels for clients looking for short-term loans. Some federal credit unions offer alternative payday loans with lower interest rates and longer repayment terms, but not all.

“Many Idahoans want and rely on low dollar credit,” Wright said, “and the banks are eager to extend their reliable and responsible service offerings to these borrowers.

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