CFPB Director Richard CordayThe $10 billion payday lending industry is under attack by a grass roots nonprofit group that seeks to counteract lenders' strong lobbying efforts as federal regulators consider new rules to rein in what some see as abuses among short-term lenders.
National People's Action, a network of 30 organizations in 17 states with 85,000 members, unveiled a multimedia campaign on Wednesday that will paint payday lenders as destructive and underhanded, trapping borrowers in a cycle of debt while making multimillionaires out of lending executives.
The campaign is set to coincide with an ongoing rulemaking process underway at the Consumer Financial Protection Bureau, which is mulling new federal rules to protect consumers from debt traps, and enact the same type of federal oversight already governing traditional banks and mortgage lenders.
Hundreds of thousands of dollars are already flowing to members of Congress, and lobbyists on both sides of the issue are working to alter the end result, even as the CFPB signals that it will likely restrict the practices of payday lenders to some degree.
The CFPB released a study in March showing that over 80 percent of payday loans are rolled over, rather than paid off after two weeks, and that half of all payday loans are rolled over at least 10 times. This could result in borrowers facing fees and interest far exceeding the principal amount borrowed, the agency found.
Richard Cordray, director of the CFPB, has already taken action against one of the nation's largest payday lenders and other smaller players for illegal debt collection practices, outright scams, and bullying. But those actions simply enforced laws already on the books.
New rules proposed by the CFPB could limit "churn," or the number of times a loan may be rolled over, regulate debt-collection practices and limit automatic bank account withdrawals in the 35 states in which payday lending is legal.
The campaign by National People's Action, dubbed Americans for Payday Lending Reform, seeks to highlight what it sees as the worst abuses in the industry in an effort to push for tough federal rules to protect an estimated 12 million payday lending customers.
"The payday lending industry is the worst of the worst -- using predatory practices to take advantage of their customers," said Liz Ryan Murray, policy director at National People's Action. "Creditors should help build wealth for working families, but payday lenders get rich by profiting off the most vulnerable. Our campaign will expose the ruthless greed and predatory nature of this industry."
Though regulators and state attorneys general have taken a dim view of a few of the extralegal practices in use by a handful of payday lenders, payday lending overall is popular among consumers. There are now more payday lending storefronts than either McDonald's or Starbucks locations, often serving less-affluent areas in which many consumers don't have access to sources of traditional credit like a bank loan or credit card, either because of income restrictions or bad credit.
In Tennessee, payday lenders receive fewer consumer complaints than traditional banks and mortgage companies, and payday lenders say that their fees, while high, are necessary given the fact that borrowers are receiving money without signing over any security such as a house and car, and without a credit check.
Payday lending fees, if the loan is paid off with a two-week timeframe, can be lower than the fee on a late credit card payment or a bounced check, and are often preferable to missing a house or a car payment, proponents argue.
And groups like the Online Lenders Alliance, an association of payday lenders, say they work hard to police their membership through best practices like transparent fee structures. The OLA has publicly applauded federal efforts to shut down fraudulent debt collectors, and often warns members about rogue companies seeking to do harm to consumers.
In fact, the trade group itself is pushing for its own set federal rules, which it argues will be more effective and easier to follow than the patchwork of state regulations currently governing payday lenders.
"To ensure innovation continues, federal standards and regulations are needed," the trade group said in October "State-by-state regulations stifle innovation and deny consumers options."
But the regulations supported by the payday lenders and those sought by opponents will likely bear little similarity to each other, since each is pursuing rule changes for different reasons.
Unlike previous anti-payday lending efforts, which sought to change policy at the legislative level, the Americans for Payday Lending Reform will directly target consumers through digital advertising and an online feature called "predator of the week," which will target the owners of payday lending firms directly.
As its first target, the group highlighted Ted Saunders, CEO of Ohio-based Community Choice Financial, who Americans for Payday Lending Reform says has publicly equated closing payday lending stores with closing hospitals. Saunders, like many others in the payday lending industry, has spent tens of thousands of dollars lobbying members of Congress, the nonprofit says.
"The industry has put their money into trying to buy legislators," Murray said.
Payday lending lobbying isn't limited to the national level. Payday lending firms in Tennessee, the birthplace of such loans in the 1990s, are spending significant amounts of money in politics.
Check Into Cash, the Cleveland, Tenn.-based payday lender that was a pioneer in promoting the industry, has spent $61,000 in 2014 supporting political action committees as well as members of Congress and the U.S. Senate, including thousands of dollars from individual executives, according to the Center for Responsive Politics.
Jones Management Services, the entity that controls Check Into Cash, is the fifth-largest payday lending donor in the U.S., according to the Center for Responsive Politics. The company gave $82,900 in the 2013-2014 cycle, behind the Online Lenders Alliance, Community Financial Services Association, Advance America and QC Holdings.
And that's just in direct gifts.
The industry as a whole spent another $1.5 million on lobbying in 2014, including $550,000 spent through the Online Lenders Alliance. The OLA then paid firms like Polaris Government Relations, which also represents AT&T, Verizon and Comcast, to lobby on its behalf. The OLA was by far the largest client represented by Polaris, paying $300,000 to bend the ears of politicians, according to the Senate Office of Public Records.
"The industry is pushing every button they can to influence this," Murray said. "But we have an opportunity here after years and years, we have a moment to really reform this industry, and folks are paying attention so we can make sure this is a good rule without a lot of loopholes."
Contact staff writer Ellis Smith at 423-757-6315 or esmith@timesfreepress.com with tips and documents.