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Mr. DURBIN. Mr. President, after the financial crisis of 2008 we learned that predatory lending hurts more than just families who lost money. Predatory lending can affect entire communities and often targets the most vulnerable in our society--low-income families and seniors.
Under Wall Street reform we addressed predatory mortgage practices and granted the Consumer Financial Protection Bureau the authority to supervise nonbank lenders, including payday lenders. We know who these payday folks are. I know them because their businesses are located a few blocks from where I live in Springfield, IL, on Macarthur Boulevard--title loans, payday loans. However, we failed to cap once and for all the annual interest rate that predatory payday lenders can charge for a loan.
In 2012 payday loan volume reached an estimated $45 billion for storefront and online loans. This does not include deposit advance loans that banks make to consumers every day.
If we look a bit deeper, we find that nearly 76 percent of payday loans are made to pay off a previous payday loan. It is a vicious cycle. Someone borrows some money, then they cannot pay it back with high interest rates, and they borrow more--deeper and deeper in debt. Fifty percent of payday borrowers ultimately default on their loans.
With numbers like these, we can only assume payday lenders' profit depends on families rolling their payday loan over eight to nine times--racking up new fees every single time.
Predatory lenders should not be allowed to pad their pockets with the hard-earned money of families that are barely getting by. These are families who are not even able to survive paycheck to paycheck.
That is why I am introducing the Protecting Consumers from Unreasonable Credit Rates Act. I wish to thank my colleagues--Senators Blumenthal, Boxer, Merkley, and Whitehouse--for their cosponsorship of this bill and their commitment to protect consumers from predatory lending practices.
This bill would establish a 36-percent annual interest rate cap for all types of consumer credit--a cap that is supported by 100 years of history according to a new report released by the National Consumer Law Center.
That is the same Federal cap that is currently in place for loans marketed to military servicemembers and their families.
Why would we protect military service families from predatory lending and no one else? I will tell you why. We found out that many of them in the military ran into financial difficulties from time to time, and the payday lenders--the title loans and the rest of them--were camping out outside of military facilities anxious to loan members of the military the money they needed to get by until the next payday. Many of our soldiers got so deeply in debt to payday loans they had to leave military service. They just could not keep up with it. So we passed a law that said we are going to protect military families from this exploitation. Our soldiers and sailors, airmen and marines are worth that much more to us that we are going to protect them.
Well, there is an obvious question: Why are we not protecting everybody? If this kind of exploitation is wrong when it comes to military families, why is it not wrong for the rest of America? It surely is. We should expand the law that curbed payday, car title, and tax refund lending around military bases to include all types of credit for all borrowers. If a lender cannot make money on a 36-percent APR, maybe the loan should not have been made in the first place.
Fifteen States and the District of Columbia have already enacted laws that protect homeowners from high-cost loans, and 34 States and the District of Colombia have limited annual interest rates to 36 percent or less for one or more types of consumer credit. But there is a problem with the State-by-State approach: Many of these State laws are riddled with loopholes. Out-of-State lenders evade these State caps. Cash-strapped customers are then subjected to 400 percent annual interest rates for payday loans, on average, and 300 percent for car title loans, on average--400 percent interest? Our bill would require all lending to conform to the 36-percent APR limit, thereby eliminating the loopholes that have allowed predatory practices to flourish in many States around the country.
Let me be clear. I understand that sometimes families fall on hard times. They need a loan to make ends meet. They are desperate. Most of us have been there at one time or another in our lives. That is why I have included in this bill the flexibility for responsible lenders to replace payday loans with reasonably priced, small-dollar loan alternatives. The bill allows lenders to exceed the 36-percent cap for one-time application fees that cover the cost of setting up a new customer account and a processing cost, such as late charges and insufficient funds fees. I urge more institutions to offer small-dollar loans with consumer protections, including rates below 36 percent.
We know it can be done because banks and credit unions--many of them--are offering those loans.
I would also like to talk about a new type of payday lending--the online payday loan. Senator Merkley of Oregon and Senator Tom Udall of New Mexico are leading the effort to crack down on these types of lenders who use the Internet to evade State law. Their bill, called the Safe Lending Act, would address online payday lending, such as hiding behind layers of anonymously registered Web sites and so-called lead generators. The bill would allow consumers to cancel a debit and prohibit payday lenders from circumventing State usury laws. We need more effective enforcement on online payday lenders. The Safe Lending Act would do it.
Another type of payday lending that I am afraid is on the rise is bank payday lending. Several banks offer deposit advance loans, which closely resemble the structure of payday loans, with up to 365 percent interest rates and short-term balloon payments.
Earlier this year, Senators Blumenthal and I wrote a letter to the Federal Reserve, OCC, and the FDIC urging them to prohibit banks from offering predatory payday loans. Today, a petition signed by 157,000 Americans will be delivered to the same regulators calling on then to ban banks from offering payday loan products. I hope they do.
My first mentor in politics was the late Senator Paul Douglas of Illinois. He was a Ph.D. in economics who served here from 1948 to 1966. I met him at the end of his career when I was a college student. He wrote:
Compound the camouflaging of credit by loading on all sorts of extraneous fees, such as exorbitant fees for credit life insurance, excessive fees for credit investigation, and all sorts of loan processing fees which rightfully should be included in the percentage rate statement so that any percentage rate quoted is meaningless and deceptive.
Senator Douglas said that 50 years ago. The name of the fees may have changed over time, but the goal of nickel-and-diming families out of their hard-earned money, unfortunately, has not changed.
By instituting a 36-percent cap on annual interest rates, the Protecting Consumers from Unreasonable Credit Rates Act would eliminate products that are predatory by their nature. The bill is supported by more than 40 consumer groups. They include Americans for Financial Reform, the Center for Responsible Lending, the Consumer Federation of America, and the National Consumer Law Center.
I ask unanimous consent to have printed in the Record a letter from these organizations in support of this legislation.
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Mr. DURBIN. Mr. President, we can allow American consumers today to keep more of their hard-earned money by establishing a reasonable fee and an annual interest rate cap, combating abuses by Internet payday lenders, and eliminating bank payday loans. Families and their communities are sure to benefit by saving more and putting more of their earnings back into the economy.
Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.
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