Washington (November 16, 2022) – Today Sen. Edward J. Markey (D-Mass.) joined Sen. Jeff Merkley (D-Ore.) and Reps. Suzanne Bonamici (D-OR-01) and Pramila Jayapal (D-WA- 07) presenting the Stopping Abuse and Fraud in Electronic Lending (SAFE) Act. The SAFE Loans Act will protect consumers from deceptive and predatory practices that rob working families of wealth by cracking down on some of the worst abuses stemming from the payday loan industry, particularly in online payday loans.
Under the leadership of the Trump administration, the Consumer Financial Protection Bureau (CFPB) has backtracked on nationwide rules protecting consumers from payday loan predators. Without strong CFPB protections at the national level, state laws protecting consumers will be all the more important.
Many states enacted tough laws to end predatory lending, but payday predators continued to use online lending to prey on consumers by hiding behind layers of anonymously registered websites and “money generators”. prospects” to evade law enforcement. Payday lenders with access to consumers’ bank accounts also issue money from loans on prepaid cards, linked to those accounts, which include high overdraft fees. When these cards are overdrawn, the payday lender can then access the consumer’s bank account and charge the overdraft fee, accumulating new debt. Even when the loan violates the law, predatory payday lenders can drain consumer bank accounts before individuals have a chance to enforce their rights.
The SAFE Loans Act of 2022 would enshrine in law three major principles to make the consumer credit market safer and more secure:
1. Make sure consumers have control of their own bank accounts
- Ensure that a third party cannot take control of a consumer’s account through remotely created checks (RCC) – checks from a consumer’s bank account created by third parties. To avoid unauthorized RCCs, consumers could pre-authorize exactly who can create an RCC on their behalf, for example when traveling.
- Allow consumers to cancel a direct debit on a small loan amount. This would prevent an Internet payday lender from stripping a checking account without a consumer being able to stop it.
2. Empower consumers to take back control of their money and increase transparency
- Require all lenders, including banks, to follow state rules for small payday loans they can offer customers in a state. Many states currently have much stricter laws than the federal government. There is currently no federal cap on interest or any limit on the number of times a loan can be rolled over.
- Increase transparency and create a better understanding of the small loan industry by requiring payday lenders to register with the Consumer Financial Protection Bureau.
- Ban overdraft fees on prepaid cards issued by payday lenders who use them to access consumer funds and add to the already exorbitant costs of payday loans.
- Require the CFPB to monitor all other charges associated with payday prepaid cards and enact a rule prohibiting any other abusive charges on prepaid cards.
3. Ban lead generators and anonymous payday loans
- Some websites describe themselves as payday lenders, but are actually “lead generators” that collect applications and auction them off to payday lenders and others. This practice is prone to abuse and has led to fraudulent debt collections.
- The SAFE Lending Act prohibits lead generators and anonymous websites in payday loans.
Joining Markey and Merkley in the Senate, the SAFE Loans Act is co-sponsored by Senators Tina Smith (D-MN), Cory Booker (D-NJ), Bernie Sanders (I-VT), Dick Durbin (D-IL), Tammy Duckworth (D-IL), Chris Van Hollen (D -MD), Dianne Feinstein (D-CA), Ron Wyden (D-OR), Richard Blumenthal (D-CT), Kirsten Gillibrand (D-NY) and Martin Heinrich (D-NM).
Joining Bonamici and Jayapal in the House, the SAFE Loans Act is co-sponsored by Representatives Earl Blumenauer (D-OR-03), Jesús G. “Chuy” García (D-IL-04), Sylvia Garcia (D-TX-29), Sheila Jackson Lee (D-TX-18) , Eleanor Holmes Norton (D-DC-At Large) and Katie Porter (D-CA-45).
The SAFE Loans Act of 2022 is endorsed by Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Association of Consumer Advocates, National Consumer League, National Consumer Law Center, Public Citizen and UnidosUS.
The text of the final invoice can be found here.