The newly-formed federal Consumer Financial Protection Bureau has the power to regulate payday loans. But a Kentucky lawmaker who has repeatedly attempted to cap payday loans says the feud in Congress over the bureau doesn’t make him confident that any progress will be made. State Senator Gerald Neal, D-33, has spent years trying to cap the annual interest for payday loans at 36 percent. That’s something the protection bureau could theoretically do…if it had a director. Currently, a Republican-led effort in the U.S. Senate has kept the president’s appointment to the bureau unconfirmed.
Neal says the gridlock makes him question whether payday loan regulation will happen or if it will stay in place. He plans to continue his efforts on the state level unless the situation in Washington changes. He adds that any federal regulation that falls short of a 36 percent cap won’t be enough.
“Anything that’s permissible, that’s not in conflict with the federal-state pre-emption type issues, I would be supportive of. I think we have to get control of this situation,” he says.
Lenders have spent significant money lobbying in state capitals and in Washington. A report from the Citizens for Responsibility and Ethics in Washington say the payday loan industry spent more than $4 million lobbying Congress last year.
“Money influences the process, there’s no question about that,” says Neal. “At the very least, it puts the arguments of those individuals who gain access to that process in a position to have their voice heard very loudly. Those people exploited by the process are heard less.”
Neal and others say payday loans are costly to the point of being predatory. Lenders counter that the loans are meant to be short-term and therefore shouldn’t be judged by annual interest rates.