Published by admin on 04 Mar 2009 at 05:58 pm
Protecting Consumers from Unreasonable Credit Rates Act 2009 Talking Points
Community Financial Services Association (CFSA)
Talking Points for the Payday Advance Industry (S. 500)
(Ref: blog.ivytek.com article Mar. 2, 2009 “Lenders in Jeopardy”)
CFSA Talking Points
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Senator Durbin’s 36% rate cap bill applies to all forms of consumer credit and is intended to restrict the availability of credit to working, middle-class Americans. We vigorously oppose this bill, not only on behalf of the millions of payday advance customers and tens of thousands of our employees, but on behalf of all hard-working Americans who need access to short-term credit and the people in various credit institutions that serve those needs.
- The legislation is ill-timed and misguided, and runs completely contrary to the current focus on fixing the nation’s economy. In the payday advance industry alone, for example, more than 50,000 jobs and $51 billion in consumer credit will be eliminated. With mainstream financial institutions reeling in credit lines and requiring borrowers to meet stringent credit standards, Americans need continued access to small-denomination, short-term credit.
- Yet, instead of insuring that Americans have continued access to regulated credit options, the Durbin legislation bans most, if not all, short-term credit lending, including everything from payday lending, title loans and bank overdraft loans to various credit card fees and tax refund anticipation loans. If enacted, Durbin’s bill will take hundreds of billions of dollars out of the credit market for working middleclass families. And not only would it put hundreds of thousands of jobs at risk, it tramples on the states’ traditional authority to regulate consumer lending.
- While a 36% annual interest rate sounds reasonable, short-term loans for duration of less than 30 days cannot be made profitably under that annual cap. Under a 36% APR cap, for example, the fee on a $100 payday loan would be a mere $1.38, less than $0.10 per day. No lender- not a bank, not a non-profit, not a credit union- could make short-term loans under the urbin plan.
- In fact, the bill would even eliminate the product now being touted as a national model for payday loan alternatives. The “Good Money” payday loan alternative has a fee of $9.90 per $100 borrowed (i.e., 252% APR). Even though offered by Goodwill, a non-profit, tax-exempt charity, this fee allows the product to just break even. For-profit payday lenders typically charge $15 per $100 borrowed while also paying taxes, employee salaries and health care, rent and overhead costs.
- CFSA has a long-standing record of advocating for responsible regulation of the payday advance industry and strong consumer protections for our customers.
- Thirty-four state legislatures have studied payday lending thoroughly and enacted laws that protect their constituents and preserve their access to small dollar shortterm credit. This bill undermines the efforts of state legislatures across the country.
- Speaking only for the payday lending industry, a 36% APR cap would put 50,000 jobs at risk and eliminate a short-term credit option used by millions of hard-working Americans.
- Since inception, CFSA has worked constructively with legislators and stakeholders in the states to support successful initiatives to raise industry standards and reform consumer protection statutes. We applaud the efforts of policymakers everywhere who work to achieve these same objectives. But we cannot agree with the de facto prohibition legislation that Senator Durbin proposes.
