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Senators Introduce Bill to Crack Down on Online Payday Loans

Press Release

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Location: Washington, DC

Today, Oregon's Senator Jeff Merkley, Senator Tom Udall (D-NM), Senator Dick Durbin (D-IL) and Senator Richard Blumenthal (D-CT) introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act. The SAFE Lending Act would crack down on the worst practices of the online payday lending industry and give states more power to protect consumers from predatory loans.

"We threw the payday lenders, who prey on families when they're at their most vulnerable, out of Oregon back in 2007," said Merkley. "Technology has taken a lot of these scams online, and it's time to crack down. Families deserve a fair shake when they're looking to borrow money, not predatory loans that trap them in a vortex of debt."

"Too often, families who turn to payday lending fall victim to deceitful practices that make it harder for them to make ends meet. With payday lending moving online, the opportunities for abuse are growing," said Udall. "We owe it to those who earn an honest paycheck to ensure they are protected online just as they are in many of our states, like New Mexico."

"Even as our economy begins to show signs of recovery, many hardworking families are still struggling to make ends meet," said Durbin. "Unfortunately, many of these families are the targets of lenders offering payday loans with outrageous, often hidden interest rates that can have crippling effects on those who can afford it least. This bill will protect consumers and law-abiding lenders and I hope we can move it quickly on the floor."

"The abusive and arbitrary practices of online payday lenders need to be stopped," said Blumenthal. "Too often these lenders saddle vulnerable families with debt - creating a vicious cycle that makes them more vulnerable. This bill will protect consumers from this predatory industry."

Many of these short-term payday loans involve exploding interest rates, eventually accruing interest of 500 percent or higher. Over twenty states have passed legislation to stop abusive lending, but these efforts have been challenged by the growing online presence of payday lenders.

The SAFE Lending Act has four main provisions:

Ensures That Consumers have Control of their own Bank Accounts

Ensures that a third party doesn't gain control of a consumer's account through remotely created checks (RCCs), which are checks from a consumer's bank account created by third parties. To prevent unauthorized RCCs, consumers will be able to preauthorize exactly who can create an RCC on his/her behalf (such as when traveling).
Allows consumers to cancel a debit (just like they can cancel a check) in connection with a small-dollar (payday) loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.

Closes Loopholes and Creates a Level Playing Field In State Usury Law Enforcement

Requires all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Only states, not the federal government, have laws to prevent 400% APR loans.

Bans 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 even led to fraudulent debt collection.
The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.

Stops Offshore and Other Illegal Online Payday Lending in Violation of State Law

Gives the Consumer Financial Protection Bureau authority on its own behalf and upon petition by state Attorneys General or other local regulators to shut down payment processing for lenders that are violating State and other consumer lending laws through the Internet.
Carefully constructed not to negatively impact the Internet.

The legislation is endorsed by Americans for Financial Reform, Center for Responsible Lending, and the Consumer Federation of America.


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