Rep. Ed Towns Co-sponsors Bill to Reform Payday Lending Practices
U.S. Rep. Edolphus “Ed” Towns (D-NY) has co-sponsored a bill that will provide significant, new federal protections for payday loan consumers. The Payday Reform Act of 2009 strengthens consumer protection measures by capping payday loan fees, requiring extended repayment plans, and enhancing warnings and disclosures provided to consumers.
In payday lending, a post-dated check or an electronic checking account is used as collateral for a short-term loan. Intended as a short-term solution for consumers who need quick and direct access to financial resources, many borrowers consider payday lending a viable option. However, according to the Center for Responsible Lending, the practice is designed to keep borrowers in debt, costing American families $4.2 billion every year in predatory fees.
“Consumers must be protected from the high fees and onerous provisions in these loans,” said Rep. Towns. “I am working hard to pass the Payday Reform Act of 2009 because with more stringent safeguards, consumers will have a less expensive credit alternative.”
In New York, payday lending has been outlawed, but experts say the laws prohibiting payday lending in many states are not comprehensive and include loopholes that allow lenders to offer out of state loans. Masking the interest rates as “fees” is another way that predatory lenders skirt laws.
Under the Payday Reform Act of 2009, fees and interest rates are capped at $15 for every $100 borrowed – lower than the fees allowed in 23 states, resulting in roughly $250 million in annual cost savings for consumers. The bill also addresses the “cycle of debt” that traps many payday loan consumers by removing rollovers that force borrowers to obtain a new loan to pay off the first one and incur additional fees. With this new bill, consumers can repay the loan over an extended period of time without additional fees or charges. As a protective measure for consumers, the bill also provides disclosures in English, Spanish, or the language in which the loan was negotiated.
Towns concluded, “In the long run, families hard pressed for resources can have access to financial assistance in a time of need without the strings attached.”