H.R. 4018, The Consumer Protection and Choice Act (according to the summary provided by the US Congress) [For the next two years in all states, and permanently in some states]…prohibits the CFPB from establishing or enforcing any regulation governing deferred presentment transactions or payday loans. This is a law to encourage each state to have its own rules for payday lending — specifically saying that state rules establishing requirements for licensed payday lenders would have precedence over rules from the CFPB.

I disagree with those (including Representative Wasserman-Schultz) who are promoting this act; one national rule governing these loan products is exactly what we do need.

If each state has its own law, then whichever state decides to be friendliest to the payday lenders could become the legal home to all of them (did you ever wonder why everyone sends their credit card payments to a South Dakota address?)

Florida has some good regulations.  One of the things I like about Florida’s law is that the loans can not be rolled. No payday lender can make a loan unless the previous loan has been paid off for twenty-four hours. The state of Florida has a database which all licensed lenders are required to use to enforce that rule.  But this is exactly why we need one federal infrastructure, not 50 different rules.

I say to all of the legislators who are backing HR 4018, the Orwellian named Consumer Protections and Choice Act: States should be allowed to impose additional restrictions on lenders (including licensing requirements) but the federal government must establish a nationwide minimum standard which all payday lenders must adhere.

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Appendix:

Consumers who take out a payday loan from a licensed lender are entitled to the following protections under Florida law:

• A borrower may borrow up to $500 per loan.

• A borrower may only have one outstanding loan at any time. This is tracked through a statewide database of all loans taken out.

• The maximum fee is 10 percent of the amount borrowed plus a $5.00 verification fee.

• The loan term cannot exceed 31 days or be less than 7 days.

• Certain contract terms that limit a borrower’s rights are prohibited.

• A borrower must pay a previous loan in full and wait 24 hours before entering into another loan. This period is designed to prevent loans from being rolled over into new loans and to give consumers the opportunity to consider other financial alternatives.

• If at the end of the loan term, the borrower is unable to pay the loan in full, the loan provider must provide a 60-day grace period without additional charge. The grace period is dependent upon the borrower making an appointment with a Consumer Credit Counseling Service within 7 days and completing the counseling within the 60-day grace period.