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Attorneys general warn against federal payday loan regulation

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A bill in Congress that would extend federal regulation to the payday lending industry would pre-empt state laws and undermine consumer safeguards, Indiana Attorney General Greg Zoeller warned in a letter signed by 40 attorneys general.

Zoeller warned House and Senate leaders in both parties against adoption of HR 6139, the Consumer Credit Access, Innovation and Modernization Act. The bill proposes to issue federal charters to payday lenders who would be required to operate within regulations set forth in the bill. The proposal is before the House Committee on Financial Services.

“It’s critical for states to both preserve consumers’ access to alternative forms of credit and retain the ability to take quick action against short-term lenders that prey on those already in financial distress,” Zoeller said in a statement issued Friday. “This joint effort among attorneys general underscores the importance of killing this federal legislation that would provide no significant protections for consumers and have unintended consequences.”

Under Indiana law, payday lenders who make small loans in a range of about $50 to $500, typically with repayment terms of two weeks, may charge annual percentage rates of as much as 391 percent. Consumer advocates say the practice is predatory and forces most cash-strapped borrowers into a cycle of costly, frequent borrowing.

The proposed federal regulation would, among other things:

  •     Create National Consumer Credit Corporation charters that would be non-depository institutions;
  •     Forbid loans of less than 30 days;
  •     Offer extended payment options for loans of less than 120 days.

But Zoeller said the bill lacks specific standards and would let lenders sidestep more stringent state regulations. He said the proposal also would exempt loans with terms of one year or less from the disclosure requirements of the Truth in Lending Act and substitute a cost metric.
 
Also signing the letter were attorneys general from Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Georgia, Guam, Hawaii, Idaho, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, Tennessee, Vermont, Washington, West Virginia, Wisconsin and Wyoming.
 


 

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  • nicodemus writes
    Thanks Bryan actually I am not brave like Paul or you but rather a Nicodemus. But just like the authors of federalist papers I'm going to exercise my own right to write under pseudonym in spite of the chilling effects a-blowing.
  • hat tip
    JOhn, I hold you in very high regard, thanks for sharing your thoughts. I hope we can continue to meet here even after you join the likes of me and Ogden for being a fearless dissident who is unwilling to say that 2+2=5.
  • Vix pervenit
    Bryan, fascinating story from your public service. I appreciate your experience and am mindful of the man sound reasons bureaucrats should not be involved in setting prices. And in a way interest is the price of credit. I have read Road to Serfdom by Hayek and argued laissez faire so much in my past that I'm ashamed of it now with that added "life experience" I lacked when younger. Life experience has taught me that "just because there are foothills does not mean there aren't mountains." Ie, just because it is hard to tell if 18% is too much for bad credit risk doesn't mean that it's hard to tell that 100% plus is usury for anybody. The point is that super bad credit risk person has no business borrowing money at all. The state does have a legit role in protecting them from themselves just as it does in many other areas of human life. As for your last remark, I do not agree that our system of private enterprise requires usury. I would point to the well functioning economies of various Muslim nations that, based upon religious law, specifically forbid the charging of compound interest ("riba") as "haraam." And yet they are able to accomplish both large scale public finance and also small scale consumer lending. So no I respectfully reject your assertion on those empirical grounds. And we don't need to resort to Sharia for inspiration. Aquinas is a source for so much of Western thought it would be hard to say where his influence begins or ends. Likewise in continental economies there were centuries of successful social commerce without modern free market laissez faire capitalism, though not surprisingly it would seem that usury was at least partly legalized by old Henry VIII. Yet there remain efforts to limit the harm. Such as the loan sharking statute http://www.law.cornell.edu/uscode/text/18/892 Many liberterians would repeal that law as well. I have thrown Ayn Rand over-board and now I am sticking with PLato and Aristotle and Aquinas on this one.
    • Here is an expert on the subject
      "For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still." -John Maynard Keynes
    • Here is an expert on the subject
      "For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still." -John Maynard Keynes
    • Nanny State?
      John, thank you, you are better educated than me as to this discussion. But I may have you on experience, since I headed up the Kansas Consumer Protection Division 2003 - 07. The payday loan folks lobbied us for a blessing, which we did not give. Some who worked for me wanted, much like you, to issue the opposite, and our division had fought them prior to my arrival. We also had many complaints from consumers alleging the rates they were paying to constitute usury. After reflection and real world experience, I came to the question of who was I to decide that 18% was acceptable, but 19% usury? Or was it 22%? Who was I too say? Just becuase I had access to the AG's signet ring? Did not work for me, AND .... is not our entire system built on usury, that is lending of $$$ at a profit for time run? If we ended all usury, absolutely defined, would our post modern, post capitalist economies even function.
      • usury is not a social good
        bryan, my source for teaching on the social evil of usury include both pagan Greek philosophers and St Thomas Aquinas. As you doubt know they came long before Pat Robertson. One need not be a Catholic to appreciate this. Even in Protestant England and Waspish America, for centuries there were laws against usury. Likewise Marxists have had a lot to say about usury too. The evils of usury are plain for all to see. As for the markets. They are not human they are mathematical constructs which aggregate human marketplace choices. They are not going to be the "invisible hand" that does anything especially good nor especially bad. That is a pretense of Adam Smith and his cronies. The market price for anything is just a point on a graph. It shows what a buyer and seller of X will both agree upon for a trade of X. That is all. markets represent price decisions and there are markets for social evils as much as social goods; markets for the illegal as well as the legal. Legislators are called upon to consider the social good which is definitely more complicated than GNP. Economically anti usury laws function by setting a price ceiling on credit. That has the certain effect of cutting off credit for those who are bad credit risks. That is a SOCIAL GOOD NOT A SOCIAL EVIL. Contemporary loan sharks should not be allowed to "give people enough rope to hang themselves with." That should go for big banks in the subprime credit card market just as much as payday lenders or car loan outfits that will sell and repo the same car over and over and over again for enough down payment. But especially it should go for the big banks. The failure to recognize what is usury is part of what got us into the whole 2007 mess. The failure to understand usury is behind the LIBOR scandal, the overinflation of the currency by the Fed Reserve, and a whole host of deriavative social ills that were not in previous generations possible prior to the US supreme court judicial fiat unilaterally striking down well functioning state laws against usury which were perfectly constitutional, and the Fed Res System putting the pressure on everyone to 'Liberalize" lending restrictions. Glass Steagal act: was it not a fine piece of Rooseveltian legislation? I can think of a lot of things they did in that era which I dont like but Glass Steagal was a gem of that era.
      • Trust the market?
        John Smith, if we cannot trust the market to regulate the worth of capital in its most liquid form, what can we trust it to do? I say just make sure all terms are clearly and unambigiously disclosed and let the market lend money. Christians can still denounce and still avoid, but this should not be given the theological solution you crave. You are not a Pat Robertson theonomist, now are you? ;)
        • usury is bad for society. make it illegal. learn from history!
          Greek philosophers, the Laws of Moses, and Chrsitian saints alike considered usury a sin and social evil. And yet, US sup ct blackrobes decided in the 1980s that state anti usury laws would be struck down as impediments to commerce. The Greenspan and liberterians and global-bankers jumped into the subprime loan business with both feet and it ended up in 2007's meltdown. Today there is precious little corrective action having been taken and the usurious money-lenders who would previously have been called loan sharks blather on about free markets and all this other excuses for their rackets. This ought to be illegal and rein in the pawnbrokers too while you're at it. USed to be republicans had some knowledge of Christian social ethics and were willing to put it into law-- now they're all brainwashed by Rand, Greenspan, Freidman, et al. the same crowd that backed Pinochet and lead us to ruin in 2007. Pathetic. You have to get a Marxist to talk sense sometimes. Crazy times these. Its not clear to me where Zoeller is really coming down on this. I think he is a swell AG. But instead of mouthing misplaced federalism and states rights and libertarian apologia, he ought to look back at the conservative Christian and Roman Catholic social traditions in America and England and Europe that for centuries forbade usury for the good of society. Republicans need to step up and act for the good of society not just banks and moneylenders.
        • Pay Day Loan
          If you are facing a financial lurch, and you need a short term loan that are very quick and great rates too, you should not hesitate visiting pay-day-loan.co.za, the right place for getting pay day loans at the right time and affordable rates as well.
        • Attorneys general warn against federal payday loan regulation
          This joint effort among attorneys general underscores the importance of killing this federal legislation..... Regards, Bizworldusa
        • Payday Loans
          The feds need to keep their noses out of state business like the constitution states!

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        1. "Am I bugging you? I don't mean to bug ya." If what I wrote below is too much social philosophy for Indiana attorneys, just take ten this vacay to watch The Lego Movie with kiddies and sing along where appropriate: https://www.youtube.com/watch?v=etzMjoH0rJw

        2. I've got some free speech to share here about who is at work via the cat's paw of the ACLU stamping out Christian observances.... 2 Thessalonians chap 2: "And we also thank God continually because, when you received the word of God, which you heard from us, you accepted it not as a human word, but as it actually is, the word of God, which is indeed at work in you who believe. For you, brothers and sisters, became imitators of God’s churches in Judea, which are in Christ Jesus: You suffered from your own people the same things those churches suffered from the Jews who killed the Lord Jesus and the prophets and also drove us out. They displease God and are hostile to everyone in their effort to keep us from speaking to the Gentiles so that they may be saved. In this way they always heap up their sins to the limit. The wrath of God has come upon them at last."

        3. Did someone not tell people who have access to the Chevy Volts that it has a gas engine and will run just like a normal car? The batteries give the Volt approximately a 40 mile range, but after that the gas engine will propel the vehicle either directly through the transmission like any other car, or gas engine recharges the batteries depending on the conditions.

        4. Catholic, Lutheran, even the Baptists nuzzling the wolf! http://www.judicialwatch.org/press-room/press-releases/judicial-watch-documents-reveal-obama-hhs-paid-baptist-children-family-services-182129786-four-months-housing-illegal-alien-children/ YET where is the Progressivist outcry? Silent. I wonder why?

        5. Thank you, Honorable Ladies, and thank you, TIL, for this interesting interview. The most interesting question was the last one, which drew the least response. Could it be that NFP stamps are a threat to the very foundation of our common law American legal tradition, a throwback to the continental system that facilitated differing standards of justice? A throwback to Star Chamber’s protection of the landed gentry? If TIL ever again interviews this same panel, I would recommend inviting one known for voicing socio-legal dissent for the masses, maybe Welch, maybe Ogden, maybe our own John Smith? As demographics shift and our social cohesion precipitously drops, a consistent judicial core will become more and more important so that Justice and Equal Protection and Due Process are yet guiding stars. If those stars fall from our collective social horizon (and can they be seen even now through the haze of NFP opinions?) then what glue other than more NFP decisions and TRO’s and executive orders -- all backed by more and more lethally armed praetorians – will prop up our government institutions? And if and when we do arrive at such an end … will any then dare call that tyranny? Or will the cost of such dissent be too high to justify?

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