Maryann Olson’s monthly Social Security check wasn’t enough to cover the cost of orthopedic shoes that she desperately needed so she turned to a payday lender. However, her $150 loan quickly turned into $1,900 in debt. I heard many stories from people like Maryann when I was fighting to end the predatory and deceptive payday lending practices in Oregon in 2007. It wasn’t right back in 2007 that working people or military families would be forced into poverty because of unforeseen expenses or trying to make ends meet, and it’s still not right today.
Payday lending is, in essence, legal loansharking. Payday lenders make loans that often carry an average annual percentage rate of 300 to 500 percent. Not surprisingly, four out of five borrowers can’t pay back those loans in time.
This is not a side effect of payday lending. It is the business model of payday lending. According to the Consumer Financial Protection Bureau (CFPB), 75 percent of fees come from re-lending to borrowers who take out more than 10 loans a year. The fees pile up and up and up. Within a year, a $300 loan can end up costing $1,200-$1,800 to pay back.
Oregon took the important step of passing strong rules, ending the triple digit interest loans and helping hard working borrowers hold on to more of their paychecks. Since then, Oregonians have saved millions in loan fees. But payday lenders have found a way around Oregon’s laws by soliciting borrowers on the internet and then utilizing remotely created checks to lift funds out of borrowers’ bank accounts at will. These are companies and bad actors that spend time looking for ways to undermine and weaken existing consumer protections. Federal action is necessary to strengthen protections for Oregonians and borrowers across the U.S.
That’s why I’m calling on the new federal consumer watchdog, the CFPB, to enact strong rules to ensure lenders across the nation make loans that are affordable when considering a borrower’s income and expenses. And they should ensure that these federal standards are supplementing strong state laws such as Oregon’s rather than undermining them. I’ve also called on the CFPB to crack down on the growing online payday lending industry that now accounts for 40 percent of all payday loans.
In the years since its creation, the CFPB has put in place smart new rules on products ranging from home mortgages to prepaid debit cards. They have won back $4.6 billion scammed from consumers through predatory and illegal practices. Now the CFPB is, as it should be, looking into payday lending.
The time to act is now. Too many families across America and even here in Oregon despite our strong laws are falling into the traps of payday loans and are seeing their lives upended. Oregon took the right steps in 2007, now we need the CFPB to finish the job. Maryann Olson and all those like her deserve protection from predatory payday loans.
Jeff Merkley represents Oregon in the United States Senate.