Bill to curb payday lending abuses introduced in Congress

Last week, legislation was introduced in Congress to protect consumers from deceptive and predatory payday lending practices.

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The Stopping Abuse and Fraud in Electronic (SAFE) Lending Act was introduced in the Senate by U.S. Sen. Jeff Merkley (D-OR) and in the House by Reps. Suzanne Bonamici (D-OR) and Pramila Jayapal (D-WA).

The SAFE Lending Act of 2022 would incorporate into law three major principles to make the consumer lending marketplace more secure. One is to ensure that consumers have control of their own bank accounts. This means that third parties 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.

The second is to allow consumers to regain control of their money and increase transparency. This would require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Also, payday lenders would be required to register with the Consumer Financial Protection Bureau. In addition, it would ban overdraft fees on prepaid cards issued by payday lenders and require the CFPB to monitor any other fees associated with payday prepaid cards.

The third principle is a ban on 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.

“Before we kicked the payday lenders out of Oregon, I saw up close how payday lenders trapped families in my blue-collar neighborhood in an inescapable vortex of debt,” Merkley said. “This legislation will ensure important consumer protections, protect state laws like Oregon’s, and create guardrails to prevent consumers from being trapped in an endless cycle of debt. American families work hard for their earnings, and they shouldn’t end up with their financial foundations ruined just because of one medical emergency or a surprise car repair.”

The lawmakers added that while many states have enacted tough laws to stop abusive lending, some payday lenders have used online lending to prey on consumers by using anonymously registered websites and “lead generators” to evade enforcement.

“It is unacceptable that predatory lenders continue to trap consumers in a cycle of debt, taking advantage of families and individuals in times of financial distress,” Bonamici said.

The bill is endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Association of Consumer Advocates, National Consumer League, National Consumer Law Center, Public Citizen, and UnidosUS.

“Working families across the country do not deserve to have their hard-earned savings stripped away by payday lenders who continue to use predatory tactics to trap people into debt,” Jayapal said. “The SAFE Lending Act will provide important guardrails to make sure working people and their families are protected against payday lenders and puts an end to the dangerous practices that entrap consumers.”