February 27, 2018

Udall, Heinrich Cosponsor SAFE Lending Act To Protect Consumers From Predatory Practices In Online Payday Lending

WASHINGTON - U.S. Senators Tom Udall and Martin Heinrich cosponsored the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act to crack down on some of the worst abuses of the payday lending industry, particularly in online payday lending, and protect consumers from deceptive and predatory practices that strip wealth from working families.

Under the Trump Administration’s leadership, the Consumer Financial Protection Bureau (CFPB), which previously was set to institute national rules related to payday loans, has suddenly reversed course on consumer protections from payday predators. In 2015, before New Mexico enacted a new state law capping interest rates, New Mexicans took on hundreds of millions of dollars of hard-to-pay-back debt through more than 300,000 high interest loans. Without strong CFPB protections at the federal level, state laws protecting consumers will be all the more important.

“Too many working New Mexicans struggling to make ends meet can fall prey to predatory payday lending practices that trap them in a cycle of debt,” said Udall. “Under President Trump's direction, the Consumer Financial Protection Bureau has turned its back on working families across the country by gutting regulations that limit the payday lending industry's predatory and deceptive practices. The SAFE Act would help protect hardworking New Mexicans by cracking down on the worst abuses by payday loan predators.”

“We need to build more economic opportunities for New Mexicans – and stopping predatory lenders from targeting families and pulling them into a cycle of debt is an important part of that work,” said Heinrich. “As the Trump Administration aims to weaken the Consumer Financial Protection Bureau, we need to take action and ensure states have the tools they need to combat deceptive online payday lending. I’m proud to cosponsor the SAFE Lending Act to empower consumers to better protect themselves against predatory lending practices.”

In recent years, many states have put in place tough laws to stop abusive lending, but payday predators have continued using online lending to prey on consumers. According to Prosperity Works, there are currently 97 lenders licensed to make loans without physical storefront addresses in New Mexico. Internet lenders hide behind layers of anonymously registered websites and “lead generators” to evade enforcement. Even when the lending violates the law, abusive payday lenders can empty consumers’ bank accounts before they have a chance to assert their rights. Payday lenders with access to consumers’ bank accounts are also issuing the money from loans on prepaid cards that include steep overdraft fees. When these cards are overdrawn, the payday lender then can reach into the consumer’s bank account and charge the overdraft fee, piling on further debts.

The SAFE Lending Act of 2018 puts in place three major principles to make the consumer lending marketplace safer and more secure:

1. Ensure That Consumers Have Control of their Own Bank Accounts

  • Ensure that a third party can’t gain control of a consumer’s account through remotely created checks (RCCs) – checks from a consumer’s bank account created by third parties. To prevent unauthorized RCCs, consumers would be able to preauthorize exactly who can create an RCC on his or her behalf, such as when traveling.  
  • Allow consumers to cancel an automatic withdrawal in connection with a small-dollar loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it. 

2. Allow Consumers to Regain Control of their Money and Increase Transparency

  • Require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Many individual states currently have much tougher laws than the federal government. There is currently no federal cap on interest or limit on the number of times a loan can be rolled over. 
  • Increase transparency and create a better understanding of the small-dollar loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau. 
  • Ban overdraft fees on prepaid cards issued by payday lenders who use them to gain access to consumers’ funds and to add to the already exorbitant costs of payday loans. 
  • Require the CFPB to monitor any other fees associated with payday prepaid cards and issue a rule banning any other predatory fees on prepaid cards. 

3. Ban Lead Generators and Anonymous Payday Lending

  • Some websites describe themselves as payday lenders but are actually “lead generators” that collect applications and auction them to payday lenders and others. This practice is rife with abuse and has led to fraudulent debt collection. 
  • The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending. 

The SAFE Lending Act has been endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, Consumers Union, Greenlining Institute, Main Street Alliance, National Association of Consumer Advocates, National Consumers League, People's Action, National Rural Social Work Caucus, Public Citizen, Southern Poverty Law Center, UNITE HERE, Unidos US, and USPIRG.