In late July, Warner introduced the ingeniously titled Protecting Consumers Access to Credit Act of 2017. The legislation would allow payday lenders to ignore state interest rate caps on consumer loans as long as they partnered with a national bank.
Although it has been generally overlooked amid the GOPs stumbling attempt to repeal Obamacare and its aggressive plan to slash taxes for Wall Street, Warners little bill has a much better chance of making it into law than the Republican Partys marquee efforts. Companion legislation is scheduled for a vote in the House Financial Services Committee on Tuesday, where the bill has the backing of archconservative Rep. Patrick McHenry (R-N.C.) and Reps. Greg Meeks (D-N.Y.) and Gwen Moore (D-Wis.), liberal Democrats with a history of sympathy for the financial industry. Warners Senate version is co-sponsored by tea party darling Sen. Pat Toomey (R-Pa.) and Sen. Gary Peters (D-Mich.).
Warners bill has drawn opposition from consumer groups including Americans for Financial Reform, the Center for Responsible Lending and the Consumer Federation of America, along with civil rights organizations including the NAACP and the Southern Poverty Law Center.
In September, the groups wrote a joint letter to every member of Congress urging them to oppose the legislation, saying it wipes away the strongest available tool against predatory lending practices and will open the floodgates to a wide range of predatory actors to make loans at 300% annual interest or higher.
Dozens of states regulate payday lending through usury caps blocking loans with annual interest rates higher than a certain amount, often 36 percent. Payday loans usually take the form of a two-week advance of a few hundred dollars with a fee of a few dozen dollars. In 2013, the Pew Charitable Trusts found that a typical payday loan was about $375, with a $55 fee. Since the life of the loan is so short, in just two weeks this fee works out to an annual interest rate of over 380 percent. In practice, though, its usually much worse than that, since, according to Pew, a typical customer ends up repeatedly rolling over s payday loan, ultimately handing over about $520 in fees to pay off an initial $375 advance.
The Consumer Financial Protection Bureau has since approved standards curbing some abuses in the market, but many states remain justifiably concerned about this type of activity. Interest rate caps are a powerful tool applying to essentially all credit, not just payday loans. But national banks have a great deal of flexibility with these standards thanks to a court decision from the 1970s. They have to comply with the interest rate caps only in their home state not those of the state where the person receiving a loan lives. So payday lenders and other predatory operations sometimes ask banks in loosely regulated states to issue loans on their behalf. The payday lender quickly buys the loan after it is issued by the bank, allowing the bank to earn a commission for its service as a regulatory frontman. In 2015, a federal court prohibited this end-run around state laws in a few states. Warners bill would essentially overturn the court decision and protect cross-state rent-a-bank schemes nationwide.