Payday lenders and check cashers fight financial reform legislation in Congress

By Ylan Q. Mui
Washington Post Staff Writer
Monday, May 10, 2010

Payday lenders and check cashers blanketed Capitol Hill last week to challenge the scope of the financial reforms under debate in Congress and combat the industry's reputation as the pariahs of the financial system.

During the "Hill Blitz" organized by the Financial Service Centers of America, a trade group, about 40 industry executives pushed to exempt check cashing from the purview of a proposed bureau that would oversee consumer financial products. Meanwhile, Democrats launched a new effort to contain the industry by limiting the number of payday loans that consumers can take out.

"There is a sense of urgency to get something done," said Eric Norrington, head of government affairs for Ace Cash Express. "We're sort of asking the question: Why are we even a part of this?"

That has become a common refrain in recent months as Congress considers the most extensive overhaul of the country's financial system in at least a decade. Though the bill, now under debate in the Senate, was crafted in response to the collapse of big banks, the wide-ranging reforms it would implement could touch a much wider array of businesses.

The bill is particularly significant for payday lenders and check cashers because it could bring the bulk of their operations under the eye of a federal watchdog for the first time. According to a study by the Federal Deposit Insurance Corp. released in December, about a quarter of American households have little or no access to banks or other traditional financial services; many rely instead on payday lenders and check cashers.

But in back-to-back meetings with dozens of members of Congress last week, industry executives argued that their sector is already regulated by a complex web of legislation in the states, including some that ban payday lending. A federal regulator would create another layer of work that would increase their costs and potentially put some providers out of business, they said. In addition, they are often the only alternative for consumers who cannot qualify for -- and sometimes do not want -- a bank account or credit card.

"You have to make the effort to do it," Aggie Clark, president of Seattle-based Moneytree, said of her packed day of meetings with lawmakers. Otherwise, she said, "you can get some pretty bad sound bites."

FiSCA pointed to potential carve-outs for community banks and auto dealers as support for its request. The group equated check cashing with buying merchandise from a store: Customers do not have standing accounts, and the transaction is over once they leave the store.

But Jean Ann Fox, director of financial services at the advocacy group Consumer Federation of America, said it was unclear how regulators would distinguish between services at stores that offer both check cashing and payday lending.

"There's no reason to carve out subsets of activities by the same type of companies," she said.

FiSCA also held a "mini-blitz" on the issue in January -- the first time it has held two in one year -- dispatching about 20 executives across the Hill. Its sister trade group representing only payday lenders, the Community Financial Services Association, has recruited customers to write letters to Congress and increased its spending on lobbying to $2.6 million last year, up 75 percent from 2008.

But a spokesman for the Treasury Department said the Obama administration opposes excluding any firms that provide financial services from the legislation.

"The consumer financial protection bureau needs to be able to require companies to provide clear, understandable information so that Americans can make financial decisions that work best for them," the Treasury Department said in a statement.

The industry also faces a renewed fight on payday lending. Consumer groups have long criticized the practice for charging triple-digit interest rates and accused lenders of preying on low-income customers. The nonprofit Center for Responsible Lending worked with North Carolina Sen. Kay Hagan (D) to introduce an amendment to the financial reform bill last week that would limit the number of payday loans consumers can take out to six per year and require lenders to give customers more time to repay the loan if needed. In addition, the amendment would give the Federal Reserve the authority to license payday lenders.

"The time is ripe," said Hagan, who worked to ban payday lending in North Carolina. "I want to make sure short-term loans remain short-term loans."

The measure is one of a slew of amendments submitted to the financial reform bill. Sen. Christopher J. Dodd (D-Conn.), author of the proposal, has supported restricting payday lenders, but multiple efforts to target the industry through federal legislation have fallen flat. The most recent bill, introduced in the House last year, died in committee.

"The true impact of additional regulation . . . will be to reduce or eliminate consumer choice and access to financial services," FiSCA wrote in a letter to Dodd this month.

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