Senators Introduce SAFE Lending Act to Protect Consumers from Predatory Practices in Payday Lending

WASHINGTON, D.C. – Today, Oregon’s Senator Jeff Merkley and Senators Tom Udall (D-NM), Bernie Sanders (I-VT), Patty Murray (D-WA), Dick Durbin (D-IL), Richard Blumenthal (D-CT), Elizabeth Warren (D-MA), Tammy Baldwin (D-WI), Edward J. Markey (D-MA), Ron Wyden (D-OR), and Cory Booker (D-NJ) introduced the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act. The SAFE Lending Act would crack down on some of the worst abuses of the payday lending industry, particularly in online payday lending, and protect consumers from deceptive and predatory practices that strip wealth from working families.

In recent years, many states have put in place tough laws to stop abusive lending. However, payday lending remains a problem online, with internet sites operating both within the U.S. and offshore, subverting existing consumer laws. Internet lenders hide behind layers of anonymously registered websites and “lead generators” to evade enforcement. Even when the lending violates the law, abusive payday lenders can empty consumers’ bank account before they have a chance to assert their rights. Payday lenders with access to consumers’ bank accounts are also issuing the money from loans on prepaid cards that include steep overdraft fees. When these cards are overdrawn, the payday lender then can reach into the consumer’s bank account and charge the overdraft fee, piling on further debts.

“Payday lenders’ innovation in finding new ways to gouge vulnerable families is deplorable but, sadly, all too predictable,” said Merkley. “In a rapidly evolving market, it’s critical that our laws and regulations keep up with new and predatory threats to consumers’ pocketbooks. It’s up to us to help keep working families from being caught in a vortex of debt, and I encourage both Congress and the Consumer Financial Protection Bureau to block unscrupulous lenders from preying on hardworking families.”

“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 it can be brought to the floor quickly.”

“Too many Americans are struggling to get ahead in an economy that is too often rigged against them.  Payday lenders are a part of the problem as they prey on struggling workers and trap them in a cycle of debt,” said Senator Baldwin. “We must stand up for working families and take on this abuse with reforms that protect Americans and provide them with the economic security they desperately need.”

“The unbelievable reality is that today millions of low-income Americans live in communities where there are no normal banking services,” said Sanders. “They are often left with no other option but to go to a payday lender who could charge an interest rate of 300 percent and trap them in a vicious cycle of debt. That is unacceptable. We must stop payday lenders from ripping off millions of Americans.”

“It’s critical that we continue to work toward an economy that works for everyone, not just the wealthiest few—and stopping predatory lenders from targeting families struggling to get by is an important part of that work,” Senator Murray said. “This bill is a good step forward in ensuring that Americans have access to responsible short-term credit while cracking down on payday lenders that avoid existing consumer laws, especially online. I look forward to this legislation moving quickly to get increased consumer protection in place.”

“Every American deserves protection from unfair and deceptive practices in the financial services industry,” said Senator Edward J. Markey.  “This legislation is especially needed because payday lenders prey on the poor, most vulnerable, and most in need of the safeguards this bill establishes.”

“All Americans deserve to be treated with fairness and respect, not taken advantage of with deceptive tactics,” said Booker. “Unfortunately, both in New Jersey and across the country poor and low-income households are particularly vulnerable to subversive tricks that leave them financially worse off. Consumer protection laws that shield Americans from predatory lending practices need to keep pace with changing times. That’s why this bill is so important.”

“This is an important move toward ending the cycle of debt that traps too many families across the country,” Wyden said. “Combined with strong payday lending rules my colleagues and I are pushing the Consumer Financial Protection Bureau to issue, this bill is part of a comprehensive plan to make sure consumers can access credit without having to worry that one emergency loan will cripple their finances.”

The SAFE Lending Act of 2016 puts in place three major principles to make the consumer lending marketplace safer and more secure:

  1. Ensure That Consumers Have Control of their Own Bank Accounts
    •  Ensure that a third party can’t gain control of a consumer’s account through remotely created checks (RCCs) – checks from a consumer’s bank account created by third parties. To prevent unauthorized RCCs, consumers would be able to preauthorize exactly who can create an RCC on his or her behalf, such as when traveling.
    • Allow consumers to cancel an automatic withdrawal 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.
  2. Allow Consumers to Regain Control of their Money and Increase Transparency
    • Require all lenders, including banks, to abide by state rules for the small-dollar, payday-like loans they may offer customers in a state. Many individual states currently have much tougher laws than the federal government. There is currently no federal cap on interest or limit on the number of times a loan can be rolled over.
    • Increase transparency and create a better understanding of the small-dollar loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau.
    • Ban overdraft fees on prepaid cards issued by payday lenders who use them to gain access to consumers’ funds and to add to the already exorbitant costs of payday loans.
    • Require the CFPB to monitor any other fees associated with payday prepaid cards and issue a rule banning any other predatory fees on prepaid cards.
  3. Ban Lead Generators and Anonymous Payday Lending
    • Some websites describe themselves as payday lenders but are 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.