Reform may be loose on payday lenders
TEXT OF STORY
Steve Chiotakis: Next week, the Senate begins consideration of the financial overhaul bill proposed by Connecticut Senator Christopher Dodd. Now one highlight of the bill is a proposed Consumer Financial Protection Bureau that’s supposed to guard against abusive lenders. But as reporter Brett Neely tells us, the bill may not be as tough on some lenders as it is on others.
Brett Neely: The payday loan industry lends small amounts at very high interest rates. The loosely regulated industry doesn’t have a sterling reputation.
Lauren Saunders: It used to be the purview of mob loan sharks.
That’s Lauren Saunders from the National Consumer Law Center. She says payday lenders are the perfect definition of what consumers need protection from.
Saunders: We’re now seeing payday lenders targeting people with unemployment benefits, you know to offer them payday loans.
But in Dodd’s draft bill, only “large” payday lenders will be overseen by the new agency. First, it will have to define what “large” means. That could take a year once the agency gets off the ground, says Ed Mierszwinski at the U.S. Public Interest Research Group.
Ed Mierszwinski: And in a year, you can make a lot of money ripping people off.
He says the payday lending industry actually came out badly in the bill-writing process because there’s a path to regulation. Mierszwinski says stockbrokers and other groups managed to water down the draft to the point where it only orders studies rather than new rules for their businesses.
Mierszwinski: And the study is going to be just one more dead forest of trees that is going to say the same thing all the other studies have shown.
Which is that the groups need tougher regulation.
Steve Schlein, a payday lending association spokesman, told me the industry likes things the way they are. Currently, states regulate payday lenders.
Steve Schlein: And there’s no federal need to regulate us. The federal government should focus on the industries that caused the economic meltdown.
He says the association plans to keep fighting Dodd’s bill as it makes its way through the Senate.
In Washington, I’m Brett Neely for Marketplace.
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