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Merkley, Udall, Durbin Introduce Legislation to Curb Online Payday Lending

July 24, 2012

WASHINGTON – Today, Oregon’s Senator Jeff Merkley, Senator Tom Udall (D-NM), and Senator Dick Durbin (D-IL) introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act. The SAFE Lending Act would crack down on the worst practices of the online payday lending industry and give states more power to enforce already-existing rules to protect consumers from predatory loans.

“It is unacceptable that financial predators are using the ‘Wild West’ of the Internet to strip wealth from working families,” said Senator Merkley. “This abusive, predatory lending hits families hard, hurting the parents and the children. We must close the loopholes that have allowed companies to utilize practices already banned in many states.” 

“Too often, families who turn to payday lending fall victim to deceitful practices that make it harder for them to make ends meet. With payday lending moving online, the opportunities for abuse are growing,” said Udall. “We owe it to those who earn an honest paycheck to ensure they are protected online just as they are in many of our states, like New Mexico.” 

“Even as our economy begins to show signs of recovery, many hardworking families are still struggling to make ends meet,” said Durbin. “Unfortunately, many of these families are the targets of lenders offering payday loans with outrageous, often hidden interest rates that can have crippling effects on those who can afford it least. This bill will protect consumers and law-abiding lenders and I hope we can move it quickly on the floor.”

Many of these short-term payday loans involve exploding interest rates, eventually accruing interest of 500 percent or higher. Over twenty states have passed legislation to stop abusive lending, but these efforts have been subverted by the growing online presence of payday lenders. 

The Merkley-Udall-Durbin SAFE Lending Act has four main concepts:

  • Ensures That Consumers have Control of their own Bank Accounts
    • Ensures that a third party doesn’t gain control of a consumer’s account through remotely created checks (RCCs), which are checks from a consumer’s bank account created by third parties.
    • Allows consumers to cancel a debit (just like they can cancel a check) in connection with a small-dollar loan. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.
  • Closes Loopholes and Creates a Level Playing Field In State Usury Law Enforcement
    • Requires all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. 
  • Bans Lead Generators and Anonymous Payday Lending
    • Some websites describe themselves as payday lenders but actually “lead generators” that collect applications and auction them to payday lenders and others .   This practice is rife with abuse and has even led to fraudulent debt collection.
    • The SAFE Lending Act bans lead generators and anonymously registered websites in payday lending.
    • Stops Offshore and Other Rogue Online Payday Lending in Violation of State Law
      • Gives the CFPB authority to shut down payment processing for lenders that are violating state and other consumer lending laws through the Internet but could otherwise avoid enforcement. 
      • Carefully constructed not to negatively impact the Internet. 

The SAFE Lending Act has been endorsed by over forty organizations from across the country, including Americans for Financial Reform, Center for Digital Democracy, Center for Responsible Lending, Consumer Federation of America, Consumers Union, the National Consumer Law Center on behalf of their low income clients, the NAACP, Native American CDFI coalition, and others.

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