Senate Democrats are looking to crack down on payday lenders.
The Stopping Abuse and Fraud in Electronic (SAFE) Lending Act introduced Thursday by Sen.Jeff Merkley (D-Ore.) would deliver a blow to payday lenders that critics say charge dangerously high interest rates and fees on short-term loans.
The SAFE Act would block payday lenders from taking money out of borrowers’ bank accounts without their permission through what is known as a “remote check.” It also targets a number of fees charged by payday lenders.
“These payday loans pull families into a vortex of debt,” Merkley told reporters.
“Once they have the checking account number, they can reach in with checks they generate and take money out of a consumer’s checking account at will,” he said.
“It’s online, and it’s very difficult to track these folks down and hold them accountable,” he added.
The legislation also targets the prepaid cards that many payday lenders use to deliver the money to borrowers. Often times, these prepaid cards come with fees to look up the balance or even use the card, Merkley said.
Merkley’s bill would specifically prohibit overdraft fees on these cards and encourage federal regulators to crack down on some of the other fees.
The legislation has 10 co-sponsors, including Sens. Tom Udall (D-N.M.), Bernie Sanders (I-Vt.),Patty Murray (D-Wash.), Dick Durbin (D-Ill.), Richard Blumenthal (D-Conn.), Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wis.), Edward J. Markey (D-Mass.), Ron Wyden (D-Ore.) and Cory Booker (D-N.J.).
But the legislation is unlikely to pass in a Republican-controlled Congress, where many Republican argue that payday loans provide low-income borrowers who can’t get loans elsewhere with much-needed cash to pay their bills.