Standing with consumer advocates in front of a Chicago payday loan store yesterday, Sen. Dick Durbin did not mince words about the effect these forms of credit are having on working people across the country. Describing the skyhigh interest rates as "totally out of hand,&...
Standing with consumer advocates in front of a Chicago payday loan store yesterday, Sen. Dick Durbin did not mince words about the effect these forms of credit are having on working people across the country. Describing the skyhigh interest rates as "totally out of hand," he called on Congress to enact his recently-introduced usury reform bill, which would cap annual interest rates for consumer credit at 36 percent. "Whether you're talking about credit card accounts, whether you're talking about these payday loan operations," he told reporters, "the interest rates they're charging now are nothing short of outrageous."
A coalition of consumer rights groups agreed. Standing shoulder to shoulder with the senior senator, Citizen Action/Illinois director Lynda DeLaforgue called the bill a courageous effort to protect American families. "People need access to good and fair credit," she said. "People do not need access to bad and predatory credit which strips them of their assets, their dignity, and all too often sends them into the courts and bankruptcy."
DeLaforgue and her colleagues are urging Congress to consider Durbin's bill, which they see as a better alternative than the Payday Loan Reform Act of 2009, introduced by Rep. Luis Gutierrez in his capacity as chairman of the House Subcommittee on Financial Products and Consumer Credit. The Chicago congressman made quite clear during a committee hearing last week that he thinks Durbin's bill is too restrictive to pass both chambers in its current state, given the industry's clout. And as Mike Lillis of the Washington Independent points out today, "Gutierrez should know":
The top contributor to his 2008 campaign was payday lender QC Holdings, which donated $10,100, according to the Center for Responsive Politics. Another payday powerhouse, the Online Lenders Alliance, contributed an additional $4,600.
But reformers don't think that the compromise legislation sufficiently protects borrowers. One major concern with Gutierrez' bill is that applies only to loans with durations of 91 days or less. Illinois' Payday Loan Reform Act of 2005 used a similar approach, only covering loans that had to be paid off within 120 days. But the payday lending industry simply stretched the terms of its loans beyond that limit to evade the new regulation. "Every time policymakers in Illinois take one step forward," said Woodstock Institute President Dory Rand at the press conference yesterday, "the industry finds a way around it and we take two steps back.”
At the state level, Rep, Julie Hamos is trying to close that loophole. A measure she took sponsorship of last week (HB 3901) would change the definition of "payday loan" to include any loan with a finance charge exceeding an annual percentage rate of 36 percent, not just those used over a 120 day period. While the powerful industry will be out in full force to beat back the legislation, targeting Democrats who have not yet voiced their support, DeLaforgue tells us that the bill could be heard in the House Financial Institutions Committee when the General Assembly returns to the capitol after spring break.
Meanwhile, consumer groups will push federal legislators to look at Illinois' payday loan experience before they ratify Gutierrez' reform. A senate aide told Lillis Tuesday that the Durbin bill “is likely to move” this year as part of a larger finance reform package being assembled by Senate Banking Committee Chairman Chris Dodd (D-Conn.). If true, that's a great sign.