Florida Congressional delegation criticizes proposed rules on payday lending

Congressman Alan Grayson answers a question during an appearance with Congressman Bill Posey at the Tiger Bay club in downtown Orlando, Friday, August 28, 2009.
Congressman Alan Grayson answers a question during an appearance with Congressman Bill Posey at the Tiger Bay club in downtown Orlando, Friday, August 28, 2009. Orlando Sentinel

In a rare show of near unity, all but one member of Florida’s delegation to the U.S. House of Representatives criticized new rules proposed by the Obama administration on payday lending.

In a letter sent to Richard Cordray, head of the U.S. Consumer Financial Protection Bureau, Florida lawmakers wrote that “while we strongly support meaningful and robust safeguards to prevent predatory lending practices in this market, we have continually insisted that any regulatory framework established be carefully balanced with the need to provide consumers with access to a range of financial services.”

The letter, sent earlier this week, urged federal regulators to model their reforms, in part, on Florida’s payday lending laws.

“To ignore our experience, which has proven to encourage lending practices that are fair and transparent without restricting credit options, would do an immeasurable disservice to our constituents,” the legislators wrote.

Democrats, including Rep. Alan Grayson of Orlando, Rep. Debbie Wasserman Schultz of Weston, Rep. Alcee Hastings of Miramar and Rep. Patrick Murphy of Jupiter, joined Republicans to sign the letter. Only Rep. Thomas Rooney of Punta Gorda, a Republican, did not sign the letter. Rooney could not be reached for comment.

Murphy has announced he is running for Sen. Marco Rubio’s seat in 2016, and Grayson has said he is likely to join the race as well.

A spokesman for the CFPB said the federal agency was reviewing the letter but had not yet responded, and that it would be several months before the exact shape of the new rules is announced.

Payday loans are short-term, high-interest loans usually taken out by low-income people who don’t have access to bank credit. The industry bills the loans as a financial lifeline for those in need.

But consumer advocates criticize the industry as predatory, saying it sells a deceptive product that traps desperate customers in a cycle of debt. Many borrowers end up having to take out new loans to pay back the old ones, critics say, and ultimately wind up with more debt than before. Nationally, annual interest rates for payday loans can go as high as 400 percent.

About 834,000 Floridians take out a payday loan every year, according to a 2013 report by Center for Responsible Lending, a nonprofit that advocates for stronger regulations on the payday industry.

Last month, President Barack Obama announced the outline of a proposal for new rules on the industry, including that payday lenders verify the ability of borrowers to repay their loans.

“The idea is pretty common sense: If you lend out money, you have to first make sure that the borrower can afford to pay it back,” Obama said in a March 26 speech in Birmingham. “But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, you’ve got to find a new business model.”

In Florida, state lawmakers have capped the amount for a single payday loan at $500, restricted consumers to taking out one loan at a time and limited fees, as well as instituting a 24-hour waiting period between loans.

In a telephone interview, Grayson said Florida’s existing regulations were working well and that he was worried federal rules would be weaker than state law.

“I’m not going to defend payday lending as a concept,” Grayson said. “But I think Florida borrowers will be worse off if a weak federal law replaces a strong state system.”

But Florida’s laws are actually failing to protect local consumers, said Gary Kalman, director of federal policy at the Center for Responsible Lending.

“The regulations are limited and do not stop consumers from falling into the debt trap,” Kalman said. “They do not enforce the core concept of responsible lending: If a lender makes a loan, it must know the borrower has a way to repay it.”

Floridians who use payday loans take out an average of about nine loans a year, according to research conducted by the center. The average loan is $250 with an annual interest rate of 312 percent. Consumers can take out a loan at brick-and-mortar stores or through the Internet.

“Because lenders have direct access to borrower’s bank accounts, they can go in the minute the paycheck hits and drain the account of what they need to cover the loan, but that doesn’t leave the borrower enough to live and eat, so they take out another loan as soon as they can,” Kalman said.

Last year, federal regulators fined one of the nation’s largest payday lenders, ACE Cash Express, $10 million for harassing borrowers. The company has seven stores in Miami, according to its website.

The payday lending industry has made campaign contributions to Florida legislators and their political action committees in the past, including those who signed the recent letter, according to a report by Americans for Financial Reform, a left-leaning advocacy group.

Top recipients of industry funds in the last election cycle included Hastings ($35,000), Murphy ($35,000) and Wasserman Schultz ($31,250).

None returned calls to their offices requesting comment.

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