I can’t say I’m surprised that payday lenders are not happy with newly proposed legislation Payday Lending Limitation Act of 2010 that more heavily regulates their industry.
Here is the industry response to the legislation.
WASHINGTON–(BUSINESS WIRE)–The Community Financial Services Association of America (CFSA), the industry representing storefront payday lenders, said that Senator Kay Hagan’s (D-NC) proposal to limit payday advances to six per year will only force consumers to use more overdraft protection, a more costly alternative to payday loans.
Hagan said she will introduce her bill, “The Payday Lending Limitation Act of 2010,” as an amendment to financial reform legislation currently on the Senate floor.
“Consumers are the losers under Senator Hagan’s plan,” said D. Lynn DeVault, board chair of CFSA. “By reducing access to payday loans, consumers will be forced to use more overdraft protection incurring an additional $14 billion in fees. It’s an overdraft fee windfall for banks. Just as important, Hagan’s amendment will wipe out as many as 155,000 jobs on Main Street while rewarding Wall Street’s bad behavior.”
DeVault said that payday loans are legitimate lending instruments that fill the gap for consumers who otherwise are unable to make ends meet during these tough economic times. Payday loans are regulated heavily in the 34 states the industry operates in.
Some consumers who may not qualify for credit cards or lines of credits from their banks use payday loans to bridge the gap in these tough economic times. Even if these consumers were able to qualify for a low-limit credit card or line of credit, mega-banks simply aren’t offering this credit to either consumers or small businesses. In essence, the credit market remains frozen for almost all small-loan consumers.
DeVault said, “Payday lending did not cause the financial meltdown that brought the U.S. and world economies to the brink of disaster. No one disagrees that the actions of mega-banks put us in the spot we’re in today. So why then does the Hagan amendment carve out those same institutions for charging overdraft fees that penalize consumers?”
Mega-bank overdraft fee revenues were over $38 billion in 2009 alone. Active households pay an average of $1,504 in overdraft fees annually. The FDIC studied the difference between an APR for a payday loan vs. the APR for overdraft protection. For a $66 loan over 2 weeks, the APR for overdraft protection is 1,165%. Under the same terms for a payday loan, the APR is 391%. If Congress is going to limit the number of payday loans, shouldn’t that apply to the mega-banks too?