David McMahon: Federal Payday Rules Helpful, but W.Va. Should Keep its Stronger Laws
Charleston Gazette - The federal Consumer Financial Protection Bureau (CFPB) recently released a working draft of a proposal to rein in abuses by payday and car-title lenders. West Virginia’s statutes putting a cap on interest rates essentially outlaw such high-priced schemes on the ground here, but our state should still pay attention. Read
The Consumer Financial Protection Bureau does not have authority to put a cap on interest rates, as West Virginia does, to prevent the triple-digit interest rates (yes, 300 percent APR and up) these schemes rely upon. So the bureau proposes other consumer protections such as those regarding loan eligibility (“ability to repay”) and debt collection practices in order to help prevent people being trapped into debt at those interest rates.
Why should West Virginians care? West Virginia citizens can be lured into these debt traps by making loans on the Internet or in storefronts across the state’s borders. Our citizens need at least the protections there that the bureau can make.
West Virginians should also care because the Consumer Financial Protection Bureau’s limited protections will be held up as a model to try to get these schemes legalized here. We need to keep West Virginia’s interest rate cap protections that keep these predatory schemes out of West Virginia entirely, so we do not even need the proposed CFPB protections for loans made here.
Religious leaders, including Popes Francis and Benedict, have called for an end to usury (lending at extremely high interest rates), which is prohibited by the Bible. Statements and resolutions passed by the United Methodist Church, the National Association of Evangelicals, the Jewish Council for Public Affairs, the U.S. Conference of Catholic Bishops, the Southern Baptist Convention, National Baptist Convention USA and the Cooperative Baptist Fellowship condemn the practices used by payday lenders to exploit the poor and are calling for reform.
The strength and readiness of our armed services has even been put in jeopardy by these predatory lenders. In 2013, the Department of Defense described payday lending as “the biggest, current financial challenge facing our service members, veterans, and their families.”
The Department of Defense is in the process of fixing loopholes in its own 36 percent rate cap on predatory loans to members of the military. West Virginia is right to keep and enforce rate cap laws similar to what is place for the military. The Consumer Financial Protection Bureau should heed these lessons when enacting reforms to ensure that its regulations to stop unscrupulous lenders cannot be evaded by payday loan sharks. For example, the bureau must close the dangerous loophole that allows for six payday loans in a year with any eligibility underwriting at all.
West Virginia’s Congressional delegation needs to support the bureau’s actions, all the while being thankful that West Virginia’s laws go further and prevent lending abuses here. The bureau’s proposed action should serve as an example to our Senators and Representatives that the agency’s consumer protection mission is important. The strength of our economy and communities depends on access to fair financial services, and as we learned in the mortgage crisis, that strength is severely undermined by unsustainable loans. People who work hard and play by the rules should be able to get ahead, not be left vulnerable to sophisticated financial schemes that rob them of their hard-won gains.
Additionally, West wVirginia’s Legislature and regulators should stand strong and not be persuaded to loosen our consumer projections. And the West Virginia’s Attorney General’s Consumer Protection Division should continue, as it always has, to pursue Internet and other lenders violating West Virginia’s laws.
Our state has done a lot to prevent wrongs perpetrated by predatory lenders. We should keep going.
David McMahon is a Charleston lawyer for low-income citizens.