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.