[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
H.R. 1214, THE PAYDAY
LOAN REFORM ACT OF 2009
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 2, 2009
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-24
U.S. GOVERNMENT PRINTING OFFICE
51-583 WASHINGTON : 2009
-----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota THADDEUS G. McCOTTER, Michigan
RON KLEIN, Florida KEVIN McCARTHY, California
CHARLES A. WILSON, Ohio BILL POSEY, Florida
ED PERLMUTTER, Colorado LYNN JENKINS, Kansas
JOE DONNELLY, Indiana
BILL FOSTER, Illinois
ANDRE CARSON, Indiana
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York JEB HENSARLING, Texas
MELVIN L. WATT, North Carolina J. GRESHAM BARRETT, South Carolina
GARY L. ACKERMAN, New York MICHAEL N. CASTLE, Delaware
BRAD SHERMAN, California PETER T. KING, New York
DENNIS MOORE, Kansas EDWARD R. ROYCE, California
PAUL E. KANJORSKI, Pennsylvania WALTER B. JONES, Jr., North
MAXINE WATERS, California Carolina
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
CAROLYN McCARTHY, New York Virginia
JOE BACA, California SCOTT GARRETT, New Jersey
AL GREEN, Texas JIM GERLACH, Pennsylvania
WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas
BRAD MILLER, North Carolina TOM PRICE, Georgia
DAVID SCOTT, Georgia PATRICK T. McHENRY, North Carolina
EMANUEL CLEAVER, Missouri JOHN CAMPBELL, California
MELISSA L. BEAN, Illinois KEVIN McCARTHY, California
PAUL W. HODES, New Hampshire KENNY MARCHANT, Texas
KEITH ELLISON, Minnesota CHRISTOPHER LEE, New York
RON KLEIN, Florida ERIK PAULSEN, Minnesota
CHARLES A. WILSON, Ohio LEONARD LANCE, New Jersey
GREGORY W. MEEKS, New York
BILL FOSTER, Illinois
ED PERLMUTTER, Colorado
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
C O N T E N T S
----------
Page
Hearing held on:
March 2, 2009................................................ 1
Appendix:
March 2, 2009................................................ 41
WITNESSES
Thursday, April 2, 2009
Flores, Michael, Chief Executive Officer, Bretton Woods, Inc..... 12
Fox, Jean Ann, Director of Financial Services, Consumer
Federation of America.......................................... 9
Guzman, Gerri, Resident, Montebello, California.................. 14
McCullen, Troy, President and Chief Executive Officer, Finance
America of Louisiana........................................... 11
APPENDIX
Prepared statements:
Flores, Michael.............................................. 42
Fox, Jean Ann................................................ 47
Guzman, Gerri................................................ 76
McCullen, Troy............................................... 78
Additional Material Submitted for the Record
McHenry, Hon. Patrick:
Federal Reserve Bank of New York Staff Report entitled,
``Payday Holiday: How Households Fare After Payday Credit
Bans,'' dated November 2007, revised February 2008......... 82
H.R. 1214, THE PAYDAY
LOAN REFORM ACT OF 2009
----------
Thursday, April 2, 2009
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:30 p.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding.
Members present: Representatives Gutierrez, Maloney, Watt,
Sherman, Moore of Kansas, Waters, McCarthy of New York, Baca,
Green, Clay, Miller of North Carolina, Scott, Cleaver, Ellison,
Meeks, Perlmutter, Speier, Childers, Minnick; Hensarling,
Castle, Royce, Capito, Garrett, Neugebauer, McHenry, Marchant,
Lee, Paulsen, and Lance.
Chairman Gutierrez. This hearing of the Subcommittee on
Financial Institutions and Consumer Credit will come to order.
Good afternoon, and thanks to all of the witnesses for
agreeing to appear before the subcommittee today. Today's
hearing is a legislative hearing that will examine H.R. 1214,
the Payday Loan Reform Act of 2009.
We will be limiting opening statements to 10 minutes per
side, but without objection, all members' opening statements
will be made a part of the record.
I yield myself 5 minutes.
Over the last 2 decades, payday lending has become a very
controversial source of credit in many of our communities. The
payday loan industry is grown in size from roughly 300 offices
in 1992 to over 24,000 last year. As our constituents are faced
with even tougher economic conditions during this recession,
they are more and more likely to turn to the services offered
by the payday lending industry to pay for emergency car
repairs, an unexpected doctor's bill, and even groceries for
their families. Many of these families have been ignored or
shut out of the mainstream financial services industry and have
nowhere else to turn for credit.
The last hearing on payday lending in front of the House of
Representatives was held in March of 2007, and much has changed
in those 2 years. More States have enacted protections against
abusive payday loan practices by enacting cap rates or by
banning payday lending all together. A select few States like
New York, North Carolina, Pennsylvania, and West Virginia have
banned payday lending altogether and many States do not offer
their citizens even a decent level of protection against
abusive payday practices. And, seven States failed to have any
cap on small loan rates.
Missouri, for example, has an APR cap as high as 1,955
percent. While I have and will continue to support consumer
groups' tireless efforts to eliminate abusive practices, in the
lending industry, they are fighting an uphill battle against
better-funded lobbyists in States like Delaware, New Hampshire
and Wisconsin, where there is no rate cap at all.
[chart]
Chairman Gutierrez. This chart separates States into three
classes: those that have banned payday lending, first; those
that kept interest rates for payday lenders at 15 percent or
391 percent APR; and, either those that have no cap at all or
have a cap in place that exceeds 391, which is the largest
number of 26 States there, the object of my bill is to move all
23 of the States in the far right column over to the middle
column. Then the consumer groups will have a realistic
opportunity to work their magic and move as many States as
possible over to the far left column.
By the way, that column on the far right represents almost
113 million who would be helped by the bill. The current state
of affairs for those consumers is unacceptable, and Congress
would be derelict in its duty if we allowed them to remain
unprotected from abusive and predatory lending. H.R. 1214, the
Payday Loan Reform Act of 2009, creates significant protections
from abusive payday practices by preventing rollovers and
freeing consumers from the debt trap by mandating a cost-free
90-day repayment plan.
The bill lowers the effective APR of a payday loan to 48
percent of 15 cents for every dollar loan. This is a rate that
is lower than the 23 current State rate caps, including
California, Colorado, New Hampshire, and even my home State of
Illinois. My legislation would also prohibit unfair mandatory
arbitration clauses, provide increased disclosure, and honor
all existing, stronger State protections by creating a Federal
floor on which stronger laws can be built.
We may hear from the consumer groups today that a similar
law that was passed in Illinois has been a failure, but
according to the State Department of Financial Institutions,
Illinois' 15.5 percent rate cap has already saved consumers in
our State over $35 million since its enactment in December of
2006. My bill would move that rate cap even lower.
I recognize that my bill is not a cure-all for this issue.
My intent with H.R. 1214 is to give the efforts to protect
consumer rights a boost by creating a minimum level of
protection that all consumers will enjoy. This legislation
would lower the APR cap for nearly 113 million Americans
immediately upon its enactment, despite complaints from the
industry that the bill sets rate caps too low and assertions
from consumers that the bill does not go far enough.
I think that improving protections for 113 million
consumers is a significant step in the right direction. The
status quo in the payday industry is unacceptable. The Payday
Loan Reform Act says ``no'' to the status quo. It would protect
millions of Americans from abusive lending practices in one
fell swoop.
I look forward to hearing the testimony of our panelists
and also look forward to a lively debate on this controversial
issue.
I yield to the gentleman, Mr. Hensarling, 5 minutes for his
opening statement.
Mr. Hensarling. Thank you, Mr. Chairman.
Congress and the Financial Services Committee continue to
enact legislation that retracts credit in the middle of a
recession. There is the mortgage cramdown that made mortgage
loans more expensive for some and inaccessible to others.
Now, just a few moment ago, the credit card bill, which
will deny credit to some may get more expensive to others; now,
we have the payday lending bill. The bill before us, I fear,
essentially does two harmful things: Number one, it establishes
price controls; and number two, it erodes risk-based pricing,
which permits people, particularly low-income people who
haven't had access to credit before, to finally have access to
needed credit.
What will the outcome be if we pass this legislation?
Again, consumers will lose. They will lose choices. They will
lose credit. They will lose economic freedom. What will they
gain? They will gain bounced checks. They will gain utility
reconnect fees. They will gain eviction notices, and they will
gain the opportunity to be forced into the underground economy.
Now, I continue to observe. Particularly, I have been
involved in the budget debate on the Floor. And listening to my
colleagues on the other side of the aisle here, how many talk
about the benefits of the free enterprise system? Yet, we
continue to have legislation after legislative initiative that
appears to attack it and erode it daily.
I would remind my colleagues that just because you don't
need or you don't appreciate a particular service doesn't mean
that your neighbor doesn't. Now, I know we will hear a number
of sad stories about people who are caught up in cycles of
debt, and I assume they are all true, and my heart will go out
to these people. But I wonder though, if this never-ending
cycle of debt that we hear so often, is that a symptom? Or is
that the cause? My belief is that it is probably the symptom,
and, indeed, I have a quote from a recent Federal Reserve study
that said:
``There is no evidence that loan rollovers and repeat
borrowers affect store profits beyond their proportional
contribution to total loan volume. In other words, the
industry's profitability does not depend on the presence of
repeat borrowers, per se.''
So I believe we need to go to the root cause of the
problem, not the symptom; the root cause of the economic
turmoil that is affecting the lives of our citizens.
We need to pass policies in this Congress and in this
committee that will help preserve our fellow citizens' jobs
today and grow better job opportunities tomorrow, and prevent
punitive taxes from shrinking their already-shrinking paycheck.
I have a suggestion. We could start this afternoon by
rejecting the Democratic budget which establishes a national
energy tax which CBO says could impact families at $1,600 a
month--$300 billion of new taxes for small businesses with all
the layoffs that would be associated with that.
Again, if we pass this legislation, I believe that
consumers are going to be forced into many alternatives that
they may find more harmful to them. The average telephone
reconnect fee is $50, maybe many consumers would have preferred
to pay the $15 market fee to borrow the hundred. The average
cable reconnect fee can be as much as $100. Again, there are
many consumers who would prefer to pay the $15 than the $100
reconnect fee.
A bounced check can average $28.23. Overdraft fees can be
$56. Now, if we get focused on APR, which may or may not be the
best way to judge these loans, a bounced check can have an APR
of 755 percent, and you add the overdraft fees. All of a sudden
on that same $100 loan, you are at 1,449 percent.
The Chairman of the FDIC has said, ``when used on a
recurring basis for small amounts, the APR for fee-based,
bounced protection far exceeds the APRs associated with payday
loans. And, given that these tend to be small, short loans to
people who were credit risky without collateral, there are
fixed costs associated with these loans. The default rates are
high. Of course this APR is going to be large, but why take
away the option of what the consumer wants to do?
Why replace his judgment or her judgment with ours?
The answer is economic growth, economic opportunity for our
neighbors, a competitive market, and effective disclosure.
Mr. Chairman, thank you, and I yield back the balance of my
time.
Chairman Gutierrez. The gentleman yields back the balance
of his time.
Mr. Moore, you are recognized for 1 minute.
Mr. Moore of Kansas. Thank you, Mr. Chairman, for holding
this hearing and for your hard work in drafting H.R. 1214, the
Payday Loan Reform Act. I am proud to be a co-sponsor of this
balanced legislation, and whenever we have industry on one side
saying the bill goes too far, and consumer groups saying it
doesn't go far enough, we are probably striking close to a
proper balance.
In Kansas, we already have laws on the books protecting
consumers that are nearly identical to H.R. 1214. Our State law
already limits a maximum fee of 15 cents per dollar advance in
advance rollovers. Applying these kinds of consumer protections
to all States would probably permit States with tougher payday
lending laws to maintain those requirements. That, I believe,
is the right approach.
Thank you, Mr. Chairman. I yield back.
Chairman Gutierrez. Thank you.
Mr. Paulsen is recognized for 2 minutes.
Mr. Paulsen. Thank you, Mr. Chairman, for holding this
hearing today.
At a time when the credit markets are frozen or certainly
drying up, I think it is very important that we ensure that we
bring as much liquidity into the market as possible, and we
need to make sure that there are as many options as possible
that are available for consumers. I found it interesting that a
recent report by the Federal Reserve Bank of the State of New
York noted that payday lenders fill a very valuable niche
market where banks and credit unions have left a void.
The study found that people in those States that banned
payday loans bounced more checks. They filed more complaints
about lenders and debt collectors and they filed for bankruptcy
at a higher rate. So, I want to make sure that any legislation
that is pushed through by Congress does not exasperate those
effects throughout the country. I certainly understand the goal
of protecting consumers, but we must make sure that credit is
available for those who need it.
I also have some concerns about the preemption portions of
the legislation which we will have discussions on. There's a
patchwork of legislation out there right now through all the
different States, but I want to make sure that we don't mire
down the payday lenders with overregulation. I look forward to
the testimony today from our witnesses, and I yield back to the
chairman.
Chairman Gutierrez. Congressman Baca, you are recognized
for 3 minutes.
Mr. Baca. Thank you very much, Chairman Gutierrez and
Ranking Member Hensarling, for your leadership on this
important subject.
The issue of payday advanced lending reform is a critical
one and I applaud Chairman Gutierrez for introducing the
legislation on this subject, and, as some of you know I have
introduced alternative legislation on this issue. I believe
that my bill, H.R. 1846, the Consumer Lending Education and
Reform Act or the CLEAR Act, reforms the payday loan industry,
while also ensuring that borrowers have access to loans when
they are needed.
In these difficult times students, police officers,
teachers, and other working Americans sometimes need access to
emergency credit. These people, like Tina Hall, who would not
have been able to pay for her daughter's emergency dental care
if it hadn't been for the payday loan she received; and, I
received about 47 different letters just in my area, and I
would like to just read one of them. It says, ``Dear
Congressman Baca: I come to (blank) for the payday loan.'' I'm
not going to give advantage to that one. ``I use the services
during an emergency. This is a good service to have when you
need some money real quick. I feel this is a good service.
Please don't take it away.''
Again, we must have access to credit open to borrowers like
Tina and this person whose letter that I just read, who are
doing the right thing. But we also must have a clean-up
industry with tougher regulations and consumer protections and
oversight. The CLEAR Act achieves these principles and will
also impose a strict national fee structure on payment loans.
My bill caps it at 15 cents per dollar plus allowance for a 5
percent original fees for loans borrowed over the Internet.
This additional 5 percent fee for the Internet loan is due to
higher consumer acquisition cost.
My bill limits borrowers to refining a loan no more than 2
times at a rate of 15 cents per dollar for the first
refinancing, and 10 cents per dollar for the second
refinancing. The CLEAR Act also requires lenders to obtain
bonding to follow the Fair Debt Collection Practice Act and to
advise borrowers of the availability of free credit counseling.
These provisions will eliminate the fly-by-night lenders who
take advantage of vulnerable individuals. It is my preempting
existing State law, the CLEAR Act would create a national
standard; and, I state, create a national standard for short-
term loans. This will ensure residents of the 50 States have
access to payday advance loans at affordable rates.
We must remember that for many of our customers, advance
loans are more effective than other alternatives, as you can
see by the chart that we have out here. If a customer with
overdraft protection on his or her checking account writes a
$100 check, but only has $75 in the account, the bank charges
them approximately $38.
If a customer who does not have overdraft protection
bounces the same $100 check, they will be charged $30.
If I could have an additional 30 seconds?
Chairman Gutierrez. There is no further time.
Mr. Baca. Can somebody yield to me?
Chairman Gutierrez. Well, we could try it.
I recognize Mr. McHenry for 3 minutes.
Mr. McHenry. I will yield to my colleague 30 seconds.
Mr. Baca. Thank you. Thank you very much.
Just to finish up, then, if a customer does not have the
overdraft protection to bounced check for the same $100, they
will be charged $30 for a bad check, which means both the bank
and the merchants are giving them a total of $60. So they're
actually paying more than going to a payday than what it would
be otherwise.
The CLEAR Act provides national regulatory reform that
contains consumer protection and oversight, while also ensuring
working Americans have access to credit.
I thank the chairman for recognizing me, and I look forward
to working with him and other members on this important issue.
And thank you very much for yielding the time.
Mr. McHenry. I thank my colleague, and I thank you, Mr.
Chairman. I thank the ranking member as well.
There is going to be a discussion about the North Carolina
experience today. In North Carolina, we simply do not have
payday lending recognized by the State. Now, the failure of
State regulation means that there are no State-chartered
institutions that are allowed to do payday lending.
However, payday lending still occurs, even though,
illegally, in North Carolina. There are mechanisms to do that.
We have individuals who drive over the State lines to do that.
We have those who access other opportunities via the Internet.
We have other individuals in the State who access credit
through simply unregulated means. The North Carolina experience
is not a good one in terms of access for low- and moderate-
income individuals to opportunities for lending. So the North
Carolina experience, we need to be clear about.
Mr. Chairman, I ask unanimous consent to submit a Federal
Reserve of New York staff report on payday credit bans.
Chairman Gutierrez. Without objection, it is so ordered.
Mr. McHenry. Thank you, Mr. Chairman.
Beyond that, this is the worst time to further constrict
credit. We see the recession with the impact on other
traditional means of lending, the constriction within our
credit markets. The access of credit has been severely limited
right now. The impact on families is real and so we need to
have regulated means of individuals being able to meet their
demands, their worldly demands of paying their car payment and
making their home payment, paying their rent, even feeding
their kids. This is a very basic function.
I want to commend the chairman, though I have concerns
about his legislation. I do appreciate the fact that he has
approached this in a pragmatic way and I hope that we can have
a realistic discussion on how we can properly allow for the
function of the credit markets in many different ways in this
country. And I am very grateful for the opportunity to have
this discussion before this committee.
I think it is important, especially now in these tough
economic times, that we have this discussion about the
importance and the necessity of payday credit advances.
Thanks so much, and I yield back.
Chairman Gutierrez. The gentleman yields back the balance
of his time.
We have Mr. Scott for a 1\1/2\ minutes.
Mr. Scott. Thank you very much, Mr. Chairman.
Let me just say very quickly, these are tough times. And
with the tumultuous financial markets, bank bailouts, rising
unemployment, and the continued downturn of our housing
markets, many working and middle-class Americans indeed are
finding it harder and harder to make ends meet, and some are
turning to short-term loans to get them over certain hurdles.
This is a market. These are consumers. These are our
constituents out there who do need help.
I think what we are trying to do with this legislation,
which I am a co-sponsor of, Mr. Chairman, as you know, we are
asking and reaching for what I will refer to as a delicate
balance. And that delicate balance is to make sure that those
of our consumers, those of our constituents who need in an
emergency situation to have access to safe, protected, and fair
means of acquiring funds that they need to get them over in a
tough time. But, yet, we must do it in a way that protects them
from getting caught in long-term debt in a cycle of debt. This
bill will not put payday lenders out of business, but what it
will do is it will cause this industry to lose some profits;
but, all of it at the expense of ensuring that those 23 States
with weak or even no payday lending rules will receive
increased protections from those that are less than honest
lending practices.
The bill also will not preempt States that already have
laws on their books that may be strong or even outlaw some of
these practices. And there are those who say the bill does not
go far enough. There are those who say the bill goes too far.
But again, Mr. Chairman, what I feel we have here is a bill
that does reach that delicate balance that is needed to give
access to credit in these tough times to those folks who need
it, while, at the same time, providing maximum protections for
our consumers in this industry.
I yield back the balance of my time.
Chairman Gutierrez. The gentleman yields back the balance
of his time. I ask unanimous consent to add an additional
minute for opening statements on each side. Hearing no
objections, it is so ordered.
Mr. Ellison, you have 45 seconds.
Mr. Ellison. Thank you, Mr. Chairman.
Sadly, there are millions of hardworking Americans out
there without checking and savings accounts. These are the
unbanked. Until we change that, until we make much greater
progress in areas of financial access, we will continue to have
payday lending industry.
In the meantime, we have to make sure that all consumers
using payday loan products are protected. For that reason, I
want to commend you, Chairman Gutierrez, on your leadership in
convening this important hearing on payday lending reform. In
sum, I believe the legislation makes a lot of progress towards
striking a balance between ensuring basic protections for
consumers and not stifling their access to credit.
However, it's only a first step of many to provide
affordable financial products to all Americans. To that end, I
am especially interested to hear more about these efforts of
regulated financial institutions like community banks, credit
unions, and others, to bring millions of unbanked Americans
into the fold of the mainstream financial services industry.
Thank you. I yield back.
Chairman Gutierrez. Thank you.
Mr. Hensarling, you are recognized for 1 additional minute.
Mr. Hensarling. Thank you, Mr. Chairman.
Not unlike the gentleman from California, I have heard from
a number of my constituents. I have heard from a lady named
Theresa in Dallas where I live, a 43-year-old divorcee who
recently survived stage 4 cancer. She wrote to me and said:
``Congressman, without these loans I would have been
evicted from my apartment on two separates occasions. Please
help to keep these loans from being banned. There are many of
us out here with no other choice at all.''
I also heard from Paul in Mesquite, Texas: ``Working payday
to payday in this economy we sometimes need a quick loan for
food, gas, utilities, prescriptions. If payday loans are
banned, our checks may have to bounce and then I have to pay
the big banks overdraft charges. I won't name the name of the
company. Payday lenders are helping working Americans stay
afloat 'til payday.''
Mr. Chairman, I hope we keep in mind Theresa of Dallas and
Paul of Mesquite as we go through this debate.
And I yield back the balance of my time.
Chairman Gutierrez. We certainly will.
Mr. Meeks, you are recognized for 45 seconds.
Mr. Meeks. Thank you, Mr. Chairman, and I just want to say,
briefly, that I wasn't always a Member of Congress. In fact, I
didn't always wear a suit like this.
I grew up in a neighborhood that was tough. My parents had
no money. And what this is about is about options. It's about
options that average, everyday people, good people can have,
if, in fact, they find a hard time. In fact, it could save
their credit. Because, if you, not only by paying a late fee,
it ruins your credit and stops individuals who have aspirations
to own a home one day.
Because when they want to go in that home, if they didn't
pay that back to the bank because they paid late, then their
credit rating goes down, and, they're not able to afford a
house to even move themselves up. This is about options. We
have some concerns. This bill addresses the concerns to protect
consumers. You know, no rollovers or fee capped at 15 cents for
every dollar. You know, default extended as far as repayment is
concerned. So, among others, in my brief time, I just want to
say that this is for everyday people and I don't have to give
the testimony of what someone has given me.
I can tell you that I have lived through it and I have seen
these results when someone doesn't have options. I have seen
them to go to someone else who gives that option, and they
don't pay back. Unfortunately, sometimes they come back without
a limit, and we need to stop that.
I think this is a good bill and I support it.
Chairman Gutierrez. Thank you.
Okay. We have some great witnesses. We are going to hear
from them now.
Testifying first before the subcommittee is Ms. Jean Ann
Fox, who is the director of financial services for the Consumer
Federation of America, but she is also testifying on behalf of
Consumer Action, Consumer's Union, the National Association of
Consumer Advocates, and the National Consumer Law Center as
well as U.S. PIRG.
Please, Ms. Fox, you are recognized for 5 minutes.
STATEMENT OF JEAN ANN FOX, DIRECTOR OF FINANCIAL SERVICES,
CONSUMER FEDERATION OF AMERICA
Ms. Fox. Thank you, Mr. Chairman, and Ranking Member
Hensarling.
I appreciate the invitation to come and testify before you
today. I am also representing the Woodstock Institute in
Chicago.
We appreciate your interest in protecting consumers from
the payday loan debt trap that results from these extremely
expensive, balloon payment loans that are secured by direct
access to consumers' checking accounts. Payday loans are
harmful to borrowers. They undermine scarce family resources.
They risk bank account ownership. They double the risk that you
will end up in bankruptcy or seriously delinquent on a credit
card payment.
When you study actual payday loan borrowers, you find that
these products are harmful to the families who use them. We
agree that payday lending and similar products should be
reformed, but we respectfully disagree with the specific
methods used in H.R. 1214. The bill authorizes single payment
loans for as short as a day or two at a cost of 391 percent APR
for a 2-week loan, or 782 percent for a 1-week loan.
The bill sets up an unaffordable repayment term. It has to
be repaid in full out of your next paycheck that is deposited
to your bank account, otherwise, you will end up paying
bounced-check fees to the payday lender and to your own bank. A
family making $35,000 a year, which is a typical payday loan
income range for borrowers, would not be able to pay a typical
$300 loan back out of their next paycheck, even if the loan
were free. These are simply unaffordable, single-payment loan
terms.
The bill also authorizes loans to be secured by unfunded
checks. In other words, to get a payday loan, every borrower
has to write a check when they have insufficient funds in the
bank at the time they write it, or they sign over electronic
control of their bank account to the payday lender. This bill
authorizes lenders to turn a debit authorization into a paper
check that takes money out of a consumer's bank account,
depriving them of current protections they would have under the
Electronic Fund Transfer Act.
The narrow definitions of a payday loan and of a creditor
in this bill also mean that it's easy to evade application of
the law. For example, the chairman mentioned the Illinois
experience. Illinois defines a covered payday loan as 120 days,
so most of the big payday lenders turned their product into
121-day or longer loans, and they are not subject to the rate
cap or the other provisions in the Illinois payday loan law.
There are other loopholes in this bill. It doesn't cover
open end credit. Most of the big payday lenders in Virginia
turned their product into open end credit to get around changes
to the law that took effect this year in Virginia. In Texas,
almost all of the payday loan business is done under the credit
services organization model, so it is doubtful whether this
bill would apply to those payday lenders in Texas.
The chairman has mentioned that at least rates would go
down in some of the States where rate caps are set higher than
$15 per hundred; however, in 10 of those States, there's no
rate cap for an installment loan, so there would be little
barrier to the payday lenders just changing their product into
a 91-day installment loan and continuing to charge even higher
interest rates.
The protections against the payday loan debt trap in this
bill are well-intentioned and we appreciate that, but they have
been tried in other States and they don't stop payday lending
from being a debt trap. The average customer has nine loans per
year, even in States that limit you to one loan at a time, or
that prohibit renewals or that have repayment plans. As long as
you allow this product to be offered under the terms of a
typical payday loan, you will have a payday loan debt trap.
Congressional approval for a bill that caps rates at this
high rate will undermine the momentum in the States. For
example, at the ballot box last fall, voters in Arizona
rejected a ballot initiative that had the same rate cap, the
same kind of repayment limits, as are included in this bill.
Voters rejected 391 percent lending in Ohio and the trend in
the States is away from legalizing payday lending, and the
momentum is toward restoring conventional, smaller rate caps;
and, I fear that passing this bill would undermine that
momentum.
We urge you to ban loans secured by getting consumers to
write unfunded checks and we urge you to support the rate cap
in Representative Speier's H.R. 1608, which would provide real
protection for all forms of credit to all consumers.
[The prepared statement of Ms. Fox can be found on page 47
of the appendix.]
Chairman Gutierrez. Thank you.
I tried to give the gentlelady a little more time, since
she is against the bill, but we are going to show fairness
here. But I hope we won't all continue, Mr. McCullen, as you
are next, the president and chief executive officer for Finance
America of Louisiana.
You are recognized for 5 minutes.
STATEMENT OF TROY McCULLEN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, FINANCE AMERICA OF LOUISIANA
Mr. McCullen. Thank you, Mr. Chairman, and members of the
subcommittee.
It is an honor to be here today. I own the largest small-
loan company in Louisiana, and operate 30 locations. I am also
president of the Louisiana Cash Advance Association, and,
working closely with the Louisiana legislature and the Office
of Financial Institutions, helped draft and implement the laws
that we currently operate.
Our laws are working and I want to offer you information
that will help you in your decisionmaking process. From the
beginning we had two specific goals in mind: provide structure
to a service that customers need and want; and implement tight
consumer protections. All lenders are licensed, regulated, and
extensively audited by the Office of Financial Institutions.
And I believe we have one of the best consumer protection laws
in the country.
If you want a national standard, and want to implement
something that will work, implement Louisiana's law. As with
any new industry, ours has certainly had its problems, and
there have been bad operators just as in any industry. But,
with lots of hard work, things are leveling out and in
Louisiana, the number of lenders is actually dropping. This
phenomenon happens in every new industry, and it's the way our
country's free market system works. Businesses rise and fall
based upon consumer demand.
I believe we will continue to see downward adjustments and
consolidations in the future. Louisiana's law provides for full
disclosure of all fees and terms on the promissory note
including APR. It prohibits companies from accepting fees to
rollover, flip, or renew a loan. This is one of my personal hot
buttons, and our law keeps consumers from getting into a cycle
of debt. Our law allows for the collection of reasonable
attorneys fees and court costs, and mandates the posting of a
fee schedule and the Office of Financial Institutions 800
number for complaints.
The maximum fee allowed on a cash advance in Louisiana is
16.75 percent of the face of the check. This means when someone
borrows $100, the fee is $20. If they borrow $200, the fee is
$40; no compounding; no excessive fees. There is a $45 fee cap;
and, like other lenders, we are allowed a $5 documentation fee.
There are very few complaints. In fact, Louisiana had over 4
million transactions in 2008, and regulators only received 24
complaints, of which only 2 pertained to excessive fees.
While we are an open book and disclose all fees in the
promissory note, I believe we should be taken out from under
the Truth in Lending. Ours is a fee-based business and APRs
should not apply. Money is just like any other commodity and
applying APR to our business skews reality and is illogical.
I compare our business to a Triple A rental store. You can
buy a hedge clipper at Home Depot for $100 or you can rent it
from Triple A for $20. Our customers rent the same way. It's
just that our product is money, and they pay a fee for the
convenience. If they do not need our service, they will not
come in.
An example of how someone would use our services if they
bounced three $50 checks, the total fees could exceed over
$150. If the same person borrows $150 from one of our stores,
the fee is around $30; $150 versus $30. It's that simple.
Defaults are a constant problem. If a $300 loan customer
charges off, 7 other customers must pay in order for us to
break even. Louisiana's law could be better by allowing us to
reduce or control bad debt in a better way. Some States have
implemented a database which allows for only one or two loans
at a time.
I am not in favor of the database, but controlling consumer
bad debt would be a benefit. We use Teletrack to track data,
and if a customer has more than one loan, we will not loan to
them. If they have charged-off somewhere else, we will not loan
to them. The consumer groups want you to believe that we are
trying to put people deeper into debt when in reality we want
our customers to pay and not default. It's perception versus
reality.
The consumer groups have done an excellent job of spreading
this information, and I have realized that perception can
become reality when repeated enough times. But the horror
stories you see in the newspaper and on television are not
reality in Louisiana; and, for the record, we are not
predatory. We take no collateral, and there is nothing to take
away.
Again, the consumer groups are spreading incorrect
information and they know it. They have hijacked the word
``predatory'' and are incorrectly applying it to us. Predatory
lending applies only to the mortgage business. It has nothing
to do with rates or fees or APR. If it did, every NSF fee would
be considered predatory.
According to the recently released FDIC study of bank
overdraft programs, the average $66 check that bounces and is
repaid in 2 weeks incurs an APR of over 1,000 percent. A $60
ATM overdraft that is repaid in 2 weeks incurs an APR of over
1,100 percent. ATM overdrafts and NSF overdrafts paid by the
bank for their customers are extensions of credit.
I am not suggesting that you apply APR to these extensions
of credit, but my point is that if you apply APR to us, then
the same should be applied to them. I am comparing apples to
apples. If you exempt them--
Chairman Gutierrez. The time of the gentleman has expired.
[The prepared statement of Mr. McCullen can be found on
page 78 of the appendix.]
Chairman Gutierrez. Testifying third is Mr. Michael Flores.
He is the chief executive officer of Bretton Woods,
Incorporated, a management consulting firm. And, Mr. Flores,
your chart that you brought is going to be to my left, your
right. Sorry, we can't put it on the other side closer to you.
STATEMENT OF MICHAEL FLORES, CHIEF EXECUTIVE OFFICER, BRETTON
WOODS, INC.
Mr. Flores. Thank you, Chairman Gutierrez, Ranking Member
Hensarling, and members of the subcommittee.
I am CEO of Bretton Woods, a management consulting firm.
And my clients include banks, thrifts, credit unions, payday
lending industry, and bank technology companies. I have more
than 30 years experience and have taught at the graduate school
of banking in Madison, Wisconsin, and the Pacific Coast Banking
School of Seattle, Washington, and published several articles
and studies on the financial services industry.
In essence, my business is helping banks improve
profitability. Because this hearing is about payday lending, I
am here today to put this in the context of the bigger picture:
short-term, unsecured credit market. The short-term credit
market is made up of products and services for people who need
a small amount of cash for a short period of time. It is more
than a $70-billion market that includes credit cared overlimit
fees, overdrafts, NSF, and payday loans.
Additionally, the market includes tens of billions of
dollars in late fees or reconnect fees, as has been mentioned
earlier. All of these credit products are short-term and are
all unsecured. Currently, banks and credit unions control the
largest share of this market. That may come as a surprise to
some people, because very few banks offer the unsecured short-
term dollar products, typically considered to be a loan.
As the committee may know, only 30 banks have signed up for
the FDIC small loan pilot program, which was designed to see if
alternatives to payday lending could be offered profitably. The
results are not in, but I am not encouraged that they will be
profitable or encouraging. I have worked with banks over these
years, and this legacy cost structure of banks inhibit their
ability to offer these small-dollar, short-term credits in a
profitable manner.
So what role do banks play in a short-term credit market?
Well, primarily through insufficient funds known as bounced
check fees and overdraft protection, these products are all
part of a competitive marketplace and all are considered
alternatives to payday loans.
[chart]
If you will refer to our first chart here, the pie chart,
published research I conducted in November and December of 2008
and recently updated in early March of this year found that
banks and credit unions earn $34.7 billion in combined NSF and
overdraft fees. By comparison, the late and overlimit penalties
on credit cards was $20 billion, and payday lenders earned $7.3
billion for 2008.
As had been mentioned earlier in your hearing 2 weeks ago
on overdrafts and credit cards, these fees for banks are an
increasingly significant source of revenue for these banks. As
a matter of fact, if these fees were eliminated or reduced,
many banks would be profitable in this country.
Now, from the consumer perspective, when a consumer doesn't
have enough money to pay a bill in his or her checking account,
then they have the option of either bouncing the check using
overdraft protection, getting an advance on a credit card, or
using a payday loan.
[chart]
If you will look at chart two, please, it has been
mentioned earlier about the FDIC study, that the average cost
of a bounced check was $66 or the average amount was $66.
Before that transaction, the consumer would pay $27 in
overdraft fees. If they did not have overdraft protection, the
fee would be averaging almost $29 to return the check, plus a
merchant fee of over $26, payable to the merchant to whom they
wrote the check.
In comparison, a customer who took out a $66 payday
advance, would pay approximately $10.56, based upon 16 cents
per dollar advance. Just by looking at the household data, you
can get a sense of what option is used most. This is one of the
major points I want to make today, if you will bring up the
next chart please.
[chart]
There are approximately 101 million households with
checking accounts in this country. In States where payday loans
are on a national average, these households pay approximately
$343 in NSF and overdraft fees per year. In States where payday
loans are available, the average household pays $239 per year.
And, in States where these loans have been eliminated, the
average household pays $496 a year in NSF and overdraft fees.
Now, I want to stress that I don't maintain there is a
direct relationship, but I think this is a significant
indicator and should justify an extensive and robust study
considering all the variables to determine if there is indeed a
direct correlation between availability of an option, such as a
payday loan, and the impact on NSF and overdraft fees.
In conclusion, I am a proponent of competition and I am a
proponent of options for the consumer. As long as there are
options available, the consumers are smart. They will look for
the best value at the lowest cost, and I would hope this
legislation strikes a balance that encourages competition and
not reduces competition.
Thank you.
[The prepared statement of Mr. Flores can be found on page
42 of the appendix.]
Chairman Gutierrez. Thank you very much.
And, now we have, last but not least, Ms. Gerri Guzman, a
resident of Montebello, California, who is coming before us
today to discuss her role as a payday lending consumer.
You are recognized for 5 minutes, Ms. Guzman.
STATEMENT OF GERRI GUZMAN, RESIDENT, MONTEBELLO, CALIFORNIA
Ms. Guzman. Thank you.
Good afternoon. My name is Gerri Guzman. I am a resident of
Los Angeles County in California.
I currently serve on the Montebello Unified School District
Board of Education, where I serve 33,000 kindergarten through
12th-grade students and their families, 78 percent of whom
qualify for free or reduced lunch. I am also active in the
following organizations: Optimists International; the Boys and
Girls Club; and my local chapter of the American Red Cross.
I have also been a payday lending customer, and I am here
today to talk about that experience. I am thankful for the
opportunity to be here, as I think sometimes with issues like
payday lending, the opinions of the people who actually use the
service aren't often heard.
I also would like to add that when my City considered a
moratorium on payday lending business licenses, I took the
opportunity to meet with several community members to listen
not only to their experience but to gain an understanding of
why my community uses payday lenders.
Personally, I consider payday loans to be a necessary evil.
If I had the choice, I would never have been in the situation
where I needed a payday loan. I am sure this rings true for
tens of millions of lending customers around the country. In a
perfect world, we would all have the money set aside in a
savings account to cover the expenses that are unexpected or
unavoidable. But having much money in a savings account is not
a reality for many working families, especially today.
I first became a payday lending customer when I decided to
leave my job and become my mother's primary caretaker 14 months
prior to her passing. I do not regret for a moment my decision;
however, I would be lying if I told you it didn't create a
temporary financial hardship. At the time, my options were to
take out a payday loan or not to purchase a water heater.
I was aware of the cost of the payday loan and decided that
it was the best option for me at the time. Thankfully, my
financial circumstances have changed, and, although I am no
longer a payday customer, I would like to know the option is
available should I need to be again. I do wish that there were
more choices and better choices for consumers, but in reality,
there are not. There are more choices in tough financial times.
People have the smarter decisions they can make and the better
off they will be in the long run.
I, like most people in this day and age, am budget
conscious and look for the best options available in all
situations. I knew what a payday loan would cost, but the
bottom line is the process was simple and quick. I am aware
that payday lending customers often get themselves into
trouble, and some people make poor choices and get caught in a
debt spiral. But, certainly, this is not unique to only payday
lenders, lending customers.
I do think that it is important that the government protect
people from predatory lenders and abusive practices. I would
like to see a mechanism in place to minimize a likelihood of
payday lending customers getting trapped in a cycle of debt. I
am sure that most people intend to pay off their loan when it
is due, but often, unexpectedly again, the money is not
available.
In these situations, it is important that a lender work
with a borrower to make sure they aren't worse off than they
were before. An adjusted pay plan would be very helpful to many
consumers and certainly be more realistic. It would also be
helpful to make it easier for customers to compare credit
products.
Most of my neighbors are hard-working middle-class and
lower-class families. Very minimal healthcare insurance often
makes it a necessary situation to make a choice of making a
payday loan or having bounced a check or doing without the
necessary services. It would be helpful to make it easier for
customers to compare those products. Companies need to be up-
front and clear about how much the borrower will pay for the
loan and exactly when it is due back.
However, I have found that even with the information to
make an informed decision, emergency situations often create
urgency and all too often the quickest, easiest solution wins
out over reason.
I want to thank you today for your time. I appreciate the
opportunity to represent the tens of millions of payday lending
customers across the country, many of whom I represent. We each
have our personal reasons for going to a payday lender, but I
think that almost all of us would agree that while this is not
a perfect option, and it's not right for everyone, we are very
grateful that the option was available when we needed it.
Thank you.
[The prepared statement of Ms. Guzman can be found on page
76 of the appendix.]
Chairman Gutierrez. Thank you very much.
I appreciate the testimony of all of the witnesses.
First, let me take in terms of my 5 minutes, I think it is
probably better to talk about a specific amount of money in
relationship to $100 in terms of the service. Because when you
do the APR, I'm not quite sure you can compare an apple to an
apple and an orange to an orange.
That's just my point of view. People can continue to use
the APR argument if they wish to do so.
I would like to share with Ms. Fox that I appreciate her
testimony and I would like to have an opportunity--I addressed
a group of consumer groups earlier today, this morning, so that
we can begin the process of dialogue and open communication.
Because it is clear, given her testimony, that you don't grasp
the bill and what our goal is in the bill.
First of all, I want to make sure that everybody
understands what our bill does. It allows you 6 payments, 13
days apart for 78 days, and including the 14 days, that's 92
days. But if you listen to the testimony that was given
earlier, you would think that you could simply roll it over.
Well, we have a ban on rollovers. We have a ban on non-
sufficient funds and being able to submit a check for non-
sufficient funds. And our APR is actually lower than Louisiana,
which is at 521. We were just at the 391, because we
specifically relate $15 to 100.
And then, of course, they said, well, they got around the
bill. Ms. Fox says that and she is right. This is not an
installment loan protection program. This is about the payday
industry. We hope in the near future to be able to deal with
installment loans, but that is not what we are talking about
today.
If people change the nature of their relationship with
those providing funds, those changes should not be attributed
to this measure. This measure, as many of my colleagues who are
supporting it understand, is a measure which will allow us to
take 23 States and over 100 million people who do not have
these protections today and be able to encourage them.
Ms. Fox, in your testimony you assert that H.R. 1214 would
provide congressional approval for payday lending. I find the
argument confusing. See, by not acting to curtail payday
lending in over 18 years, it has gone from 300 store funds to
24,000. So has not Congress already provided its approval?
Nine million Americans participate in legal and authorized
payday lending. Wouldn't Federal regulations on payday lending
demonstrate that Congress is paying attention and ready to
regulate the industry?
Is your argument that no Federal legislation on payday
lending would send us a message that Congress disapproves of
payday lending?
Ms. Fox. Thank you, Mr. Chairman.
The action that Congress has taken on payday lending to-
date has been to ban this product for service members and their
families. In 2006, you enacted a provision in a defense
authorization bill to put payday lending off limits to service
members at the request of the Department of Defense, because
this product was viewed as being harmful to them.
Typically, small loan products are regulated at the State
level where State laws authorized certain types of lending,
like installment lending, pawn shops, or payday loans.
Typically, Congress does not enact authorization bills for
specific products. You have over-arching laws like Truth in
Lending, which require all creditors to tell consumers what
their loans cost.
Chairman Gutierrez. I guess I understand those things, and
since even though I am the chairman, my time is still limited
to 5 minutes.
Ms. Fox. Okay.
Chairman Gutierrez. The issue here is whether or not we
wish to take 23 States and over 100 million consumers and offer
them a protection they do not have today.
And so, I guess, would you like to see rollovers eliminated
in 23 States, which this bill does? Just yes or no, because I
know my time is waning.
Ms. Fox. This bill doesn't stop back-to-back lending.
Chairman Gutierrez. It does. It does do that.
We will have a continuing conversation about it because it
does, and it specifically states it.
You know, if you wish to be against the bill because you
wish us to do nothing other than eliminate payday lending,
which in your statement anybody can read and extrapolate, Ms.
Fox, you don't like the payday. I don't like the payday. You
wish to eliminate it. You wish to ban it.
That's not possible. That's not possible. So what we're
trying to do, many of us, is to reform that very system that
many of us, and as I stated earlier, we would like to take the
columns over. But that's just not possible. So as we look at
those situations in this Congress, and I just would like to say
to the lady also that, you know, I began the amendment process
for the military servicemen here in this committee that got it
down to 36 percent. We were successful in that venture.
I think I have a good gauge of what is and can or cannot be
successful. But I will work with you, because the only bill
that we have gotten after I introduced this bill is a bill that
makes it harsher on consumers vis-a-vis the payday industry. I
look forward to working with those who have the ability of
doing better.
I yield to the gentleman, Mr. Hensarling, 5 minutes.
Mr. Hensarling. Thank you, Mr. Chairman.
Okay, Ms. Fox, I guess I have to bite on this one. I think
I heard the chairman say, and I'm not sure I completely heard
you make this definitive statement, but is it the position of
your organization that payday lending should be banned?
Ms. Fox. It is our position that consumers should be
protected from triple-digit interest rates. They should not be
exposed to writing checks without money in the bank as security
for a loan, and they should have an affordable repayment
schedule.
Mr. Hensarling. Well, unfortunately, Ms. Fox, I have a
short period of time.
You would do well in this institution as well. We're not
particularly good about giving yes or no answers either.
[laughter]
Mr. Hensarling. I am curious, and I'll throw this open to
anybody on the panel. I believe that the best consumer
protection is a competitive market. I have spent a number of
years in the business world. I think I have history. I think I
have evidence.
If I did my own homework properly, I have seen studies that
tell me that there are over 22,300 payday stores in America. I
saw one study from a particular State that said there were more
payday locations than McDonald's, Burger Kings, and Wendy's
combined. I had my staff pull the ``Yellow Pages'' out of
Dallas. I'm a Dallas resident, and there were over 125
different payday locations: 46 locations of Ace Cash Express;
25 of Cliff's Check Cashing; 14 Advance America; 13 Check and
Go; 10 Easy; 7 Check Into Cash; 6 Federal Cash Advance; 4
Speedy Cash; and too many Cash America locations to even count.
To me, it seems like a fairly competitive market, and I am
fearful that the underlying legislation might make it less
competitive.
Does anybody want to take the opposite view that there is a
competitive marketplace?
Seeing none, let's talk about what might happen if we lack
competition in that market.
The gentleman from North Carolina, who isn't here at the
moment because I saw him speaking on the Floor out of the
corner of my eye.
Mr. Watt. One of them is.
Mr. Hensarling. The gentleman who agrees with me is not!
[laughter]
Mr. Hensarling. The one who introduced the Federal Reserve
study into the record, I would like to quote from that same
Federal Reserve Study, which investigated how consumers fared
after payday lending was essentially banned in Georgia and
North Carolina.
I'm sure the gentleman from North Carolina will have an
opportunity to speak to that, but the Federal Reserve study
concluded:
``Compared with households and states where payday lending
is permitted, households in Georgia have bounced more checks,
complained more to the Federal Trade Commission about lenders
and debt collectors, filed for Chapter 7 Bankruptcy protection
at a higher rate. North Carolina households have fared about
the same. This negative correlation reduced payday credit
supply, increased credit problems, contradicts the debt trap
critique of payday lending, but is consistent with the
hypothesis of payday credit is preferable to substitutes such
as the bounced check protection sold by credit unions and banks
or loans from pawn shops.''
That is from the Federal Reserve.
Does anybody on the panel wish to take issue with their
conclusions?
Ms. Fox. Yes.
Mr. Hensarling. Ms. Fox, we will give you a short amount of
time.
Ms. Fox. Yes. When studies are done that look at actual
payday loan borrowers, they find that they are better off
without this product. For example, in a large Texas study,
payday loan borrowers are twice as likely to end up in
bankruptcy in the next 2 years, as people who applied for it
and were turned down for the loan.
Mr. Hensarling. Well, Ms. Fox, do you not believe the
earlier testimony as far as various APRs? I think the gentleman
from Louisiana talked about the average fee for bounced checks
and reconnect fees.
Do you doubt that evidence?
Ms. Fox. Absolutely not, as we testified earlier in March.
We think overdraft loans are the bank equivalent of payday
lending, and this committee can deal with that by enacting
Representative Maloney's H.R. 1456.
Mr. Hensarling. Well, I cut into the remaining time I have.
I'm going to try to get another question in here if at all
possible. But I know we just had this debate on credit cards,
and yes, credit card terms can be confusing. I have walked into
a number of payday stores in Dallas, Texas. The fees are right
there on a big board. It's not confusing to me. I talked to
several customers. They seem to know exactly what they were
doing and they were very happy to have that option versus a lot
of other alternatives that were less so.
Mr. McCullen, in Louisiana, are these hard-to-understand
transactions?
Mr. McCullen. No, sir, they are not.
Chairman Gutierrez. 15 seconds, Mr. McCullen, to answer the
question.
Mr. McCullen. They are not. Everything is posted and listed
on the promissory note and the customer understands exactly
what the fees are. There are no hidden fees.
Ms. Guzman. Is there any time for one additional, brief
comment?
Chairman Gutierrez. No, I'm sorry. A little later on, I'm
sure we will come back to you Ms. Guzman.
We have about 11\1/2\ or 12 minutes. I am going to stay and
listen to the gentleman from North Carolina as it has already
been kind of prepped up. We don't want to take a break.
So the gentleman from North Carolina is recognized for 5
minutes, and then we are going to go vote and come right back.
Mr. Watt. Thank you, Mr. Chairman, because I might not be
able to come back. And I appreciate you getting my questions in
or comments in before I leave.
First of all, I want to start by inviting all of my
colleagues who say they believe in States' rights to come on
back and join the States' rights caucus that I have been trying
to remind them they have deserted. I have no problem with
helping these 23 States, but when the chairman says that we
can't ban payday lenders, that's exactly what we have done in
North Carolina.
Whether I agree with it or don't agree with it, we have a
State legislature there. They have considered this issue. And I
have been trying to decide, trying to review the bill to be
clear on whether it does preempt State laws or whether it does
not preempt State laws. To the extent that it preempts State
laws, North Carolina's law, it may well be helping the 23
States that the chairman said that it helps, but it's
overriding North Carolina's law which says you can't do this in
North Carolina.
So unless we can write this bill in such a way that the
provisions of it are a true floor as opposed to a preemption, I
have serious problems with it and I don't read these provisions
to do that.
Chairman Gutierrez. Will the gentleman enter into colloquy
with me?
Mr. Watt. I'm happy to.
Chairman Gutierrez. That is the intent of the bill--not to
preempt.
Mr. Watt. I have been told that.
Chairman Gutierrez. And I look forward to working with you,
because I know you're really good at the law and drafting
legislation so we can make it as explicit as possible to make
sure that we reach that goal.
Mr. Watt. I just want to make clear that when you find all
of these folks who are supporting this bill, when you make that
clear, the room will get a lot more scarce than it is today. If
this bill is a floor, and we are explicit that it is a floor,
then I think we are moving the state of the law forward; but,
if it is a preemption of State law, then in North Carolina, we
haven't moved.
Chairman Gutierrez. Would the gentleman yield?
Mr. Watt. My legislators tell me they don't want payday
lending in North Carolina.
Chairman Gutierrez. It will be a lot easier, my friend,
because if that isn't accomplished--and I know that you and I
can get that done explicitly in this legislature--then the room
won't be empty or full, because I'll simply withdraw the
legislation as a sponsor and ask my colleagues. It will cease
to exist as a bill, if we are not, and I look forward to
working with you because I know the clarity with which you can
write that legislation.
Mr. Watt. I am glad to hear that from the Chair, and I hope
everybody in the room heard it.
Mr. Scott. Will the gentleman yield for one second?
Mr. Watt. I am happy to yield to my gentleman friend from
Georgia.
Mr. Scott. Thank you very much, the gentleman from North
Carolina. Our case is very similar in Georgia where we also
have outlawed payday lending. And as a co-sponsor of this bill,
I can assure you that we will make, if it is not clear as is,
we certainly will make sure that it is clear, and the chairman
has spoken.
Mr. Watt. Well, I am reading the language on page 10,
``Requirements of this subsection regarding extended repayment
plan shall supersede any repayment plan requirements under any
State law.'' I don't know what that means. Perhaps we will be
able to clarify it. I am reading that we preserved the
enforcement authority of the attorneys general. That is on page
16 of the bill.
But, I am also reading, ``Scope of application: the
provisions of the section apply to any person or entity that
seeks to evade its applicability by any device, subterfuge, or
pretense whatsoever.'' North Carolina has done it openly, not
by pretense, subterfuge or device. They have done it openly.
So, I mean, if your intent is that, and we can get there,
I'll be right there with you.
Chairman Gutierrez. Thank you.
The time of the gentleman has expired.
I wanted you to have the opportunity, and Mr. Royce has a
question. So we will try to get that in.
I would encourage people to go vote, and we will be right
back.
Mr. Royce. Thank you very much, Mr. Chairman.
In light of the time, let me just ask this question of the
witnesses. You know, some author referred to payday lending as
predatory in nature, but on that topic, the New York Federal
Reserve--and this was during the time that our current Treasury
Secretary, Tim Geithner, was the bank's president--did a study
entitled, ``Defining and Detecting Predatory Lending.'' And in
that study, they come to this issue of payday lending, and they
note:
``Our findings seem mostly inconsistent with the hypothesis
that payday lenders prey on lower, for example, lower the
welfare of households with uncertain income, or households with
less education. Those types of households who happen to live in
the States that allow unlimited payday loans are less likely to
report being turned down for credit, but are not likely by and
large to report higher debt levels, contrary to the
overpowering prediction of our model.''
So I was going to ask Mr. McCullen: Do you agree with the
New York Fed's assessment of payday loans?
Doesn't the presence of a robust short-term credit market
in fact benefit some consumers by increasing the availability
of credit to them: And I will also ask Ms. Flores that
question.
Mr. McCullen. Yes, sir, Mr. Royce.
People use us for all kinds of different reasons, and it's
a lot of credit almost that people can use at any point.
Mr. Royce. And, Mr. Flores, your observations on that
front?
Mr. Flores. I am in full support of the fact that the
availability of payday lending certainly assists those
consumers.
Chairman Gutierrez. We have 5 minutes to get over and vote.
We will make sure you get all your time when we get back.
Mr. Royce. Well, I'll just conclude then, Mr. Chairman, by
saying, let's make sure in terms of that credit availability
for people that try to access credit, let's make sure that
they're allowed, you know, that we don't foreclose that option
for them as we move forward.
And, again, Mr. Chairman, thank you.
Chairman Gutierrez. Yes. We are going to recess for the
vote. I have an emergency meeting I need to go to. Mr. Ellison
will be filling in for me when we get back.
[recess]
Mr. Ellison. [presiding] The hearing will be called back to
order and reconvened. The Chair will recognize himself at this
time for 5 minutes.
Ms. Fox?
Ms. Fox. Yes, sir.
Mr. Ellison. In your testimony, you asserted that H.R. 1214
could provide congressional approval for payday lending. I find
this argument somewhat confusing. By not acting to curtail
payday lending over the--oh, sorry.
Ms. Fox, it is clear from your testimony that you are very
much opposed to H.R. 1214, and any attempts to regulate the
payday industry that would stop short of banning the product.
Part of what you do for a living is to count votes.
Is there legislation currently in the Congress that would
ban payday lending that you believe has enough support to pass
both Chambers, and be signed into law?
Ms. Fox. We believe that consumers need protection from all
forms of extremely expensive credit. Senator Durbin's S. 500
and Representative Speier's H.R. 1608 would provide the
traditional 36 percent small loan rate cap that would cover
everything from bank overdraft loans to payday loans.
President Obama ran on a platform supporting a 36 percent
rate cap, and voters in America support that by 70 percent--
Mr. Ellison. Reclaiming my time, Ms. Fox, does that piece
of legislation you just cited have enough votes to pass?
Ms. Fox. I am ever hopeful that Congress wants to support
consumers caught up in a disastrous credit--
Mr. Ellison. Thank you, Ms. Fox. Ms. Fox, you know, you
have heard the testimony of Ms. Guzman. She did say that--
believe her term was a necessary evil, something that people
don't want, but--and I'll be the first to agree, that I tend to
not have a lot of problems with payday lending.
But if you just simply foreclose the option outright, what
happens to people like, say, Ms. Guzman? Does she now have to
bounce a check to get that water heater she needed? What about
the situation where you just need some money, you don't have
anybody to go to, and your options are to bounce a check or
just suffer, I guess. What about that?
Ms. Fox. We think consumers deserve better than payday
lending, and in California--
Mr. Ellison. Okay, Ms. Fox. Thank you. Thank you, Ms. Fox.
So Ms. Guzman, your situation--I mean, do you think that
the bill that we're talking about now balances the equities in
a reasonable way? As you already pointed out, you're no big fan
of payday lending either, but if you have to do something, and
you're really in a jam, do you think it balances the equities?
Ms. Guzman. I think it is offering a very realistic answer
to payday lenders. It gives them the option and access, which
is the American way. And at the same time, it protects the
consumer, which is what we look traditionally from our
government for, a minimal amount of protection, in this case
from the situation getting out of control, or not having, you
know, the certain protections you need to not continually live
in this type of debt.
Mr. Ellison. Thank you, Ms. Guzman.
Mr. Flores, how could the payday product be improved to
make it more useful to the consumer, in other words, eliminate
the debt trap, and to make the loan easier to repay? Do you
have any views on this?
Mr. Flores. Yes, sir, I do. I have read the legislation,
and I agree with the--certainly the disclosures. I'm not
necessarily for the Truth in Lending disclosure, because I
think that's misleading. I like the 6-month payment plan. That
certainly offers relief to the consumer. And so I think those
would be the key issues.
One point I would like to make, though, on that
legislation, is the $.15 per dollar cap. Philosophically, I'm
against price caps or price controls, and not just from the
business's profitability standpoint, but as businesses grow,
and costs increase, be it salaries, overhead, whatever, there's
no additional relief for that company to do something with
pricing, short of trying to control expenses more.
And so I think that is an issue that I would take with
this. Otherwise, I think the bill will strike the balance that
you're looking for.
Mr. Ellison. Mr. Flores, in your testimony you also
indicate that, ``the legacy cost structures of banks inhibit
their ability to offer short-term low-dollar credits in a
profitable manner.''
Could you elaborate on what you mean by that?
Mr. Flores. Banks have a huge investment in what we call
brick and mortar, branch offices around the country that have
huge operation centers, information technology centers, and
personnel. And the way they are designed--the cost for them--
and we looked at this many years ago, and a lot of banks, we
said, you cannot make an individual loan under $5,000.
The resource it needs, the individual resource, the systems
resources, the compliance costs, the documentation cost, to
make a $5,000 loan, is the same that would make a $500 loan.
And they cannot--and they just don't have the cost structure to
efficiently offer that product.
Mr. Ellison. The gentleman from Minnesota's time has
expired, and the Chair will recognize Mr. McHenry from Texas.
Mr. McHenry. Thank you, Mr. Chairman.
Ms. Fox, a basic question for you: If payday loans were
prohibited nationwide, let's say we did that legislatively,
what do you think would replace it?
Ms. Fox. If payday loans were prohibited nationwide,
consumers would save billions of dollars in repeat lending.
Mr. McHenry. Yes, but what would replace it?
Ms. Fox. Consumers would use traditional small loan
companies. That's what happened in North Carolina, when payday
lending was expelled--
Mr. McHenry. I'm from North Carolina, and that's not truly
the case. They travel to South Carolina, they use other
mechanisms. I mean, people need short-term lending, and what
you're saying is, in essence, people just bounce a check.
Ms. Fox. Very few consumers deliberately write a check to
bounce, whenever they don't have sufficient money. That tends
to be something that catches you by surprise when your bank
lets your debit card--
Mr. McHenry. Sure, unless--
Ms. Fox. --transaction go through. But there are--
Mr. McHenry. Reclaiming my time, let's reference the
Federal Reserve report that is submitted for the record.
The Federal Reserve report expresses that in States like
Georgia and North Carolina, there are--the example they use in
the report--you have more complaints to the Federal Trade
Commission about lenders and debt collectors, you have more
bounced checks in that State, you have higher bankruptcy rates
in that State, and they don't allow for payday lending.
So explain to me how this is a rational argument you're
making. Because human nature--there is obviously a need for
this type of short-term lending. Do you disagree that there is
a need for it?
Ms. Fox. There is a need for small dollar lending. The
short term is part of the problem. The Federal Reserve report
you're referring to is one staff member's draft report. It's
not an official report from the New York Federal Reserve Bank.
They looked at aggregate data; they did not look at individual
consumer experiences.
For example, during that period of time, there were more
complaints from D.C. consumers about debt collection to the
Federal Trade Commission than there were from Georgia, so the
standards that he used to try to describe what was going on--
Mr. McHenry. So you just--
Ms. Fox. --are too--
Mr. McHenry. I'm trying to talk about--
Ms. Fox. --aggregate. They aren't a good description.
Mr. McHenry. Okay.
Ms. Fox. If you look at research done, looking at actual
consumers who use payday lending, every one of them shows it is
harmful.
Mr. McHenry. Okay, great. So you are saying that there is
just simply--there is a demand for it, but you don't think it
is good for consumers to have this option.
Ms. Fox. We think there's a demand for small dollar loans
that are served by credit unions, by credit card cash advances,
by traditional small loan companies that make installment loans
to consumers. This market can be served and is being served--
Mr. McHenry. What if you don't have a credit card?
Ms. Fox. --and a third of the people live in a State where
payday lending is not permitted, and they get small dollar
loans.
Mr. McHenry. Sure, and you know what they do? They travel
across State lines in North Carolina. I have seen the effects
in North Carolina--
Ms. Fox. In New England--
Mr. McHenry. Pardon me?
Ms. Fox. In New England--
Mr. McHenry. Well, I'm not from New England. I'm giving you
the North Carolina experience--
Ms. Fox. Yes.
Mr. McHenry. --and, you know, you have mentioned that
basically, in North Carolina, we haven't suffered based on a
prohibition of payday loans.
Ms. Fox. That's what the banking commissioner's survey of
North Carolina consumers found, that they were--they didn't
miss it. They were glad to see it go.
Mr. McHenry. Certainly, in terms of who they deal with, and
the regulated--you are saying that one person's opinion is
invalid from the Federal Reserve, which I think the American
people know is pretty valid, and another person's is very
valid, based on your political perspective.
Ms. Fox. Well, the North Carolina bank--
Mr. McHenry. Mr. Flores?
Ms. Fox. --had an--
Mr. McHenry. Let me actually go on to someone else, Ms.
Fox. I don't have much time, and we obviously know your
perspective on this, that you just--you understand the demand,
but you don't think it's possible or necessary to fill that
demand with regulated means.
Mr. Flores, you do a lot of work on this, and the question
is, do you have an opinion on whether consumers are better off,
or not better off, to have a regulated payday alternative?
Mr. Flores. Sir, they're much better off. It's a $40
billion demand annually--
Mr. McHenry. Why are they better off?
Mr. Flores. --for this type of credit. That $40 billion
would have to be met with other vehicles. And right now, that
other vehicle is basically an overdraft or a credit card
advance.
A credit card advance is very expensive. You have an
advance fee of 3 to 5 percent. And in these cases, you are
going to have APRs well north of 20 percent. Most people will
make minimum payments, and they will never get out from under
it, versus a payday loan, which they fully plan to pay off in
that 1-week or 2-week period.
Mr. McHenry. Well, thank you, Mr. Flores. And what I would
say is you're missing a third option, which is the illegal
option. And Mr. Chairman, if you will give me 15 additional
seconds.
There is a third option, which is the illegal option,
which--instead of charging a high interest rate, the experience
I have had with individuals I knew and worked with in my
family's business, that they could get lending, and it was
dollar-for-dollar lending. If you wanted $20, you paid $20.
Mr. Ellison. The gentleman's time has expired.
Mr. McHenry. And if you didn't pay, you got your legs
broken.
Mr. Ellison. The gentleman's time--
Mr. McHenry. That's the illegal option, and that's
unfortunately what Ms. Fox is really trying to put people into.
Mr. Ellison. The gentleman's time has expired.
The Chair will recognize the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you, Mr. Chairman.
Let me begin by going over a little bit here. First, let me
deal with the State's preemption issue. It certainly is the
intent of this legislation not to interfere with those States
who already have laws on the books of whatever nature they may
be. And I think when we get to my colleague from New York, Mrs.
McCarthy, she's going to go into a little more detail with
this, because there are varying understandings of that.
But certainly this legislation is a targeted piece of
legislation that targets 23 States that do not have any
regulatory reform on payday lenders. It is also an effort by
this body to get a bill passed that will provide some major
protections for consumers and our constituents who want this
service. Whether we may want it, or may use it or not, there is
a niche and a market that is there that consumers want and
need.
Let me just very briefly--Ms. Fox, are you aware that this
legislation caps interest rates and fees for short-term loans
at a combined 15 percent, and at the same time gives borrowers
liberal, very liberal, repayment loans that are structured in a
way that will not take them into this cycle of unending debt?
Ms. Fox. I'm glad you have asked about that, because there
are some States that have tried using an extended repayment
plan, and it hasn't worked to prevent payday loans from being a
debt trap.
In those States, they have the same average number of loans
for customers as the rest of the States that authorize payday
lending. And that's because the payday lender whose profit is
based on getting consumers to renew loans one after another,
has no incentive to encourage people to use the repayment plan.
You have to ask for it.
So in the States that have tried it, only 2 to 3 percent of
the eligible loans end up going into the repayment plan. We
have the same problem with the renewal ban. It prohibits
renewals. Well, all but five of the States that permit payday
lending prohibit renewals in one way or the other.
But consumers just come in on payday, pay off the loan, and
now they don't have enough money to make it for the rest of the
pay cycle. So they write a new check, they take out a new loan.
It's not counted as a renewal, it's a back-to-back loan. And
that's how people get trapped in the debt trap.
Mr. Scott. All right. But what I'm saying is you support
the measure that we have in the bill, or do you not support in
this legislation, our language that will regulate and will
impose balanced criterion on these loans, which specifically
address the cycle of debt and excessive interest rates that
result from continually refinancing or rolling over these
loans? That is the crucible of the issue--
Ms. Fox. Right.
Mr. Scott. --that this bill addresses and stops, which is
the most egregious point in payday lending.
Ms. Fox. We think this bill authorizes egregious lending.
It authorizes writing unfunded checks to get loans. It
authorizes a payback term of as little as 2 days. It authorizes
back-to-back loans, one right after the other.
Mr. Scott. All right.
Ms. Fox. And it does not serve as your intended consumer
protection.
Mr. Scott. All right. Well do you believe, Ms. Fox, that
for these 23 States that have nothing, this bill will offer
some help, and a regulated form is needed?
Ms. Fox. It doesn't offer much of a reduction in the rates.
For example, in California, payday loans cost--
Mr. Scott. But my question is--and I agree. We have to
fashion measures to try to respond to constituents' needs, and
measures that we can develop the coalitions and alliances of
thought, that we can get through this body.
Ms. Fox. Well, we--
Mr. Scott. And so the point I'm saying is, would not these
23 States be better off with this effort of bringing some
relief and some reform into regulatory reform? Just yes or no,
that's all I wanted to--
Ms. Fox. No, they would not be better off, because of all
the loopholes in the bill.
Mr. Scott. All right.
Ms. Guzman, let me ask you this, because I only have one
question. I understand, I believe, you have used payday
lending, is that correct?
Ms. Guzman. Yes, I have.
Mr. Scott. So I think that your comments will be very
important. May I just ask--
Mr. Ellison. The gentleman's time has expired.
Mr. Scott. All right.
Mr. Ellison. Mr. Marchant from Texas.
Mr. Marchant. Thank you. First of all, my position on this,
after serving 18 years in the State legislature, and dealing
with this issue every single session for 18 years, is that this
is an issue that very much deserves to be debated and decided
in the State houses.
I do not believe this is a Federal issue. I'm with Mr.
Watts on this issue. I do not believe that you can write
legislation on this kind of a subject at the Federal level, and
try to force it down on States who have clearly had the
opportunity.
Probably every year they meet, these 23 States have had the
opportunity to take this subject up. So that--I'm not for the
legislation simply because of that.
As far as trying to set Federal lending limits and
Federal--and actually have the Federal Government set rates on
a private transaction, a legal private transaction, that also
is something that I'm not interested in.
Perhaps there's some venue--because there is Federal
insurance on the banks, there may be some case to be made for
preemptive rights of the Federal Government to go down and
talk--and pass ordinances and laws for banks.
In Texas, we were the last State in the Union to have
branch banking, because we felt like it was a States' rights
issue. We were the last State to pass home equity loans,
because we felt like it was a States' rights issue.
So I'm very much a States' rights issue guy on this here. I
do not believe that the Federal Government can effectively
regulate this industry.
I represent a district that--throughout my career, I always
felt like the payday lending industry was an industry that I
would see in districts where there were a lot of working class
people, or a lot of people who live from paycheck-to-paycheck.
But my district is a suburban district near Dallas. And if
you walk into one of the payday lenders in my district, you're
going to find housewives, you're going to find school teachers,
you're going to find factory workers, you're going to find
people who work for the city, and you're going to find people
that I don't think that we have given enough credit to.
These are people who can add and subtract and multiply.
They know that bouncing the check at the bank is not a good
thing. They know that it is costlier to go to the bank and
bounce a check, than it is to go to the payday lender. They
know that it could hurt their credit rating if they make a
credit card payment late. They know that the credit card late
payment is probably going to be more expensive than the payday
lending rate.
So I, like the testimony the gentleman from Louisiana--we
think that our system in Texas is working very well. I would
like to give the other 23 States that have decided to not do
anything about it, or still haven't decided what kind of laws
they want to make, to continue to have that--those rights, and
to continue with that.
For that reason, I am going to be against the bill, and
thank you, Mr. Chairman.
Mr. Ellison. The gentleman yields back. The Chair will
recognize the gentlelady from New York, Mrs. McCarthy.
Mrs. McCarthy of New York. Thank you, Mr. Chairman, I
appreciate it, and I appreciate this hearing.
First let me say, and join my colleagues from North
Carolina and Georgia--that, you know, in the State of New York,
we do not have payday lending, but we do. It's just a different
form of what you're talking about. What is defined and
regulated by the State as a payday loan, they have operations
that offer similar products, but don't meet all the principles
of a payday loan, so they're unregulated, and that is a grave
concern.
And I think that's what, you know, we're trying to get at.
Now I know CFSA has best practices for the payday advance
industry. A lot of that has been put into this bill. The only
difference will be that within this bill, there will be teeth,
where we can actually--do regulate that, if that's what is
going to come down on the road.
So to say that, you know, some of the States don't have any
form of payday, I find not true. But the other thing is too, in
my area where we have ``payday lenders,'' we don't have any
banks.
So where are those people who live in those particular
areas--there is no banking. The other thing is, in almost all
the banks I know, you have to have an account to go in and cash
a check.
So again, we're finding problems with that. You know, if
it's a paycheck from a--whatever the job is, and they have an
account there, maybe the bank will cash that check, but
otherwise, you can't cash a check there.
So I guess my feeling is that--I guess I want to go to Mrs.
Fox. It's my understanding that the Consumer Financial Services
Association of America has a list of best practices that their
members must follow, and that the legislation reforming payday
loans, H.R. 1214, puts a cap on interest rates that is lower
than the fees allowed, again, in 23 States that allow payday
lending.
Could you explain how a payday loan could be worse than the
consequences of not being able to obtain a short-term loan from
a financial institute, forcing an individual to bounce a check,
as we have heard from many of my colleagues? And I think that's
something that we have to take into consideration.
There is no one here--Republican or Democrat--who wants to
condone anyone who is ripping off any of our constituents,
nobody does. But the fact of life is that we need to have
people--when they want to cash their check, or have a short-
term loan, they need to have a place to go.
To me, it's almost like an ATM machine. Here are your
prices. If you want to borrow or take money out with your
credit card, you're going to pay an upfront fee. And if we can
do that with some sort of regulation, I think that it's better
than what it is today.
Ms. Fox. In New York, your 25 percent criminal usury cap
prohibits payday lending, and although you have check cashing
outlets where people pay a fee to turn a paper check into cash,
that's not a credit transaction. I know you do have refund
anticipation loans that are expensive in New York, because
those are offered by banks, and New York can't regulate those
interest rates.
But there are other options. Everybody who gets a payday
loan is a bank customer. You have to have a checking account
open in order to write a check. You can apply to your bank for
real overdraft protection at a lower cost. A lot of credit
unions offer low-cost, small loans to their members. And in
Pennsylvania, the treasurer of the State puts deposits into
credit unions to encourage them to make very-low-cost loans
available in Pennsylvania. There are other options.
Mrs. McCarthy of New York. I agree with you on that. But
I'm saying to you, I know in certain districts--part of my
district, they don't have a credit union. They don't have a
bank. Where are they supposed to go? They also probably don't
have a car. So where do they go?
Ms. Fox. Most people, when they have a $100 or $200
shortfall, turn to their family and friends. They deal with
whatever the credit emergency is. They call the utility company
and ask for extended payments. They ask the landlord for more
time.
Mrs. McCarthy of New York. Ms. Fox, I'm not trying to give
you--
Ms. Fox. Paying 400 percent interest doesn't help.
Mrs. McCarthy of New York. Ms. Fox, I'm not trying to give
you a hard time, but we're talking about people who are
probably on the very lower end of income. And most likely their
family members are not going to have money.
But with that--I saw that--Mr. Flores, you wanted to say
something?
Mr. Flores. Yes, I would like to respond to that. When you
go to the bank to apply for a traditional overdraft line of
credit, which would be akin to a credit card, many banks that I
have dealt with, who have actually formalized these overdraft
programs, have limited or eliminated offering the traditional
overdraft line of credit because there is very little revenue
associated with that product. The revenue is all in this
overdraft protection program.
So I think it's very difficult to say that people have the
option to go in and get this. Because banks have looked at the
profitability of all these products, and given the interest
margin squeeze they are all facing right now, they are looking
for the most profitable products they can offer.
Mrs. McCarthy of New York. Thank you. With that, I yield
back my time.
Chairman Gutierrez. Thank you. We're going to go to him, I
just want to alert the members that when we begin these
hearings, there are 10 minutes per side, by unanimous consent,
for opening statements. And if people want time, they will be
allotted that time on the basis of their seniority in the
committee, so that everybody has ample time to be able--the
gentleman on my right takes care of that side, and sometimes
people don't get to speak.
I assure you when I was here 17 years ago, and I was way
down there on the fourth row, I would have hoped these kinds of
rules would have been in place.
Mr. Cleaver, you are recognized for 5 minutes.
Mr. Cleaver. Mr. Chairman, this is one of those times--I
know people assume that we come here with all--with the
positions already in concrete, which is not true for me,
certainly not today. Most of the assumptions I came in here
with have dramatically changed, although I am not a fan of
payday lending, not at all.
But I am concerned about--and I'm not sure anyone has
addressed, a way in which we can provide necessary services to
the unbanked. And it is--the unbanked represents an untapped
market, and I'm not--I'm a federalist, so I'm not interested in
supplanting Federal legislation--of supplanting State
legislation with Federal legislation.
And so I'm really struggling with exactly where I am. The
only thing I know for sure is that I don't like payday lending,
because I think some of the practices, frankly--when you have
fees of 300 percent, as happens in some places, that can't
possibly be good. But on the other hand, what do we do to
provide service to the unbanked? Can anybody--yes, sir, Mr.
Flores?
Mr. Flores. Mr. Cleaver, I have worked with clients in the
past who have tried to address the unbanked situation. And the
key to the unbanked is that the first product they need is the
checking account.
And one of the strategies that has been employed is what is
called a checkless checking account, where direct deposit is
made to eliminate any potential fraud on the deposit side, or
returned items on the deposit side. And no checks are
permitted, only the debit card for ATM withdrawals and point-
of-sale transactions, which would eliminate any potential for
overdrawing this type of account. Once somebody establishes
that, and over a period of time has a track record, then they
go that next step in developing the appropriate credit--
Mr. Cleaver. Well, the problem is--thank you. I hate to cut
you off, except my time is running out.
And the problem with that is, when you go into the urban
core, there is no gradualization, because there is no bank. You
know--I mean, you can ride around in the urban core for miles
and miles, and not come across a bank, or a grocery store, for
that matter. But so--Ms. Guzman?
Ms. Guzman. Congressman, let me say that going back to my
statement of an evil, but a necessary evil. When we deal with
evil, we try to minimize the impact. And I think this
legislation, and legislation like it that permits payday
lending establishments, however regulates or caps the fees to
protect the consumer, is the only answer.
Addressing Mrs. Fox, many of my neighbors do not have
family members they can turn to for a payday lender situation.
We have a transient population right now with the economy,
where people move from community to community, State to State
to find jobs. Many of them are first generation Americans,
native born Americans. They do not have a family support base
or safety net here.
So as I stated, payday lenders, there is a market for them.
There is a need for them, and I would just be very grateful if
we--
Mr. Cleaver. Yes, but the--where I'm trying to go--thank
you. Where I'm trying to go is, and maybe I'm inarticulate--
Ms. Guzman. What is the answer?
Mr. Cleaver. What happens to the people who live in areas
where there are no banks?
Ms. Fox. There are--may I?
Mr. Cleaver. Ms. Fox?
Ms. Fox. There is a program that has been launched in a lot
of large cities. It is called ``Bank On,'' where the mayors and
local civic leaders are working with banks to encourage them to
provide the basic entry level banking services that the
communities that you're describing need.
My organization, Consumer Federation of America, is working
on America Saves campaigns across the country, to try to help
low- and moderate-income consumers become savers. We have new
data out from the Federal Reserve that compares people who use
payday loans with people who don't. And the folks who don't use
them are twice as likely to be savers than the folks who end up
at a payday loan outlet.
So there are creative programs being worked on to bank the
unbanked. The problem is, once you get these consumers banked,
now they are the prime market for payday lenders, since having
a checking account is a prerequisite, but they don't have
enough money to be able to pay the loan back all at one time on
their next payday.
Chairman Gutierrez. Yes. Thank you very much. Your time has
expired.
Mr. Cleaver. Thank you, Mr. Chairman.
Chairman Gutierrez. Ten seconds to go out of order.
Unanimous consent--I would like to ask Mr. McCullen a question
before we go any further. Hearing no objection, it is so
ordered.
I have your statement here, the last paragraph:
``I respectfully request that you defeat this bill in its
current form, or alter it to mirror the Louisiana law, which
allows $20--which allows $.20 and a dollar--a dollar plus''--
per dollar, sorry--``and a documentation fee.''
So you're against the bill in its current form, is that
correct?
Mr. McCullen. Yes, sir.
Chairman Gutierrez. Thank you.
The gentlelady, Ms. Speier, is recognized for 5 minutes.
Ms. Speier. Thank you, Mr. Chairman.
Ms. Guzman, I have a question for you. If you could get a
payday loan for 36 percent instead of 300 percent, would you
like that?
So would you support a bill that had an interest cap of 36
percent, instead of 300 percent?
Ms. Guzman. I would support any loan that would--
Ms. Speier. Would you put your microphone on, please?
Ms. Guzman. I apologize. I would support anything that
would minimize the negative impact to consumers or my
neighbors.
Ms. Speier. So there--yes, Mr. Flores?
Mr. Flores. I would like to--
Ms. Speier. Would you support that?
Mr. Flores. Well, it sounds good. But the issue is, when
you do a 36 percent annual percentage rate, that means it boils
down to a $1.38 fee for a $100.00 advance. And no one can--
there's not a business model that will allow anyone to even
cover their costs and offer that product.
So while yes, it sounds good, and it is--36 percent on a
traditional installment loan makes sense, for this type of fee
product, it does not make sense, because no one--you would put
the industry out of business, and you have--
Ms. Speier. Well, maybe--maybe some of us think that the
industry has overstayed its welcome.
Mr. Flores. Well, yes, ma'am, but--
Ms. Speier. That's--Mr. Flores, that's all I have to ask
for you.
It appears that the payday lending industry is losing some
of its momentum. In fact, there hasn't been an initiative that
they brought before a State since 2005, that has actually
passed. Because the people in our communities recognize that
300 percent interest rate is not a good interest rate. And in
D.C., as I understand it, it has been prohibited--payday loans
are now prohibited, as is they are in New York and other
places.
And I have to believe, that in huge communities like that,
where there are a high percentage of low-income people, they
are finding other ways to get credit when they need it.
The question I have for you, Ms. Fox, is the following:
What are the loopholes in this bill?
Ms. Fox. The bill defines a covered payday loan as only
closed end, so it leaves out all the payday lenders who have
turned their product into an open-end product. For example, in
Virginia, Advance America makes open-end loans--same cost
structure, same term for the loan. It's just they called it
open end. It would not be subject to this bill.
Any loan that was for longer than the 90-day definition,
would not be covered by this bill. And payday lenders have
already changed the term of their loans, in order to get around
that kind of definition as well.
We are also concerned that the credit services organization
model, which is used widely in Texas--Texas has never passed a
payday loan industry bill to allow payday lending. The Texas
Finance Commission rules would permit it under their regular
small loan law, but most lenders in Texas call themselves
credit services organizations, and charge a high fee for
arranging a loan with some third party lender. It's not clear
to me that they would be subject.
So we have a bill that would leave out almost all the
payday lending in Illinois, probably all of it in Texas, a big
chunk of it in Virginia, and it would be very easy for lenders
in 10 of the 23 States that permit higher than the 390 percent
cap in this bill, to just change their product into an
installment product, because there's no rate cap on installment
lending.
So it would be very easy to get around the definitions in
this bill, and keep right on charging 500, 600 percent, without
violating this bill.
Ms. Speier. So what would improve the bill?
Ms. Fox. It would improve the bill to prohibit holding
personal checks as security for the loan, to make these loans
on the basis of a contract.
Ms. Speier. Let me ask you a question on that. It seems to
me almost illegal, because you're not supposed to provide a
check if you don't have sufficient funds.
Ms. Fox. You would think so, wouldn't you?
Ms. Speier. So you are basically--they are basically asking
the person to conduct themselves in an illegal manner by
offering up that check, that they don't have sufficient funds
to use.
Ms. Fox. That's true. And in some States, the payday loan
law has to exempt these customers from being subject to the
criminal bad check law, because otherwise they would be.
But the lender knows you don't have money in the bank when
they take the check. But they hold it, and that adds costs for
consumers. In Virginia, people paid, in 2007, about $5 million
to their own banks in bounced check fees, because their payday
loan checks were returned.
Ms. Speier. Okay, so that would improve the bill. What else
would improve the bill?
Ms. Fox. A longer loan repayment term. If you gave people 5
months to repay your payday loan as structured here, at $15 per
hundred. That gets it down to 36 percent APR. We know from the
chart I included in my testimony, that the typical family
making $35,000 a year cannot pay all of this back out of one
paycheck.
Chairman Gutierrez. The time of the gentlelady has expired.
Ms. Speier. Thank you.
Chairman Gutierrez. Congresswoman Maxine Waters from
California.
Ms. Waters. Thank you very much. I'm going to yield to the
gentlelady from California. I just came in. Her line of
questioning is exactly what I looked forward to doing, so Ms.
Speier, would you continue your line of questioning, please?
Ms. Speier. Thank you.
So we had so far established that if you would not require
them to hold a blank check, that would be an improvement to the
bill. If you could provide within this bill a longer repayment
period, that would improve the bill.
What else would you--
Ms. Fox. And a reasonable small loan rate cap. Competition
does not drive down the cost of payday lending. You may have a
payday lender on every corner, but they are all typically
charging the legal rate. It takes a rate cap to bring down the
costs of loans to consumers who have little power in the
market.
And the traditional small loan rate cap of 36 percent is a
reform that consumers say they want to have. In polling that
was released just this last week, 70 percent of Americans want
a rate cap of 36 percent or less to protect consumers from rate
gouging. And that's the rate cap that was upheld in voting at
the polls in both Ohio and Arizona last fall.
Consumers don't think that creditors should be allowed to
charge 400 percent.
Ms. Speier. Ms. Fox, just to point out to you, when I
introduced the bill that would create a usury rate of 36
percent, I had people in my district calling me saying,
``That's too high,'' so they would find this particular
conversation particularly interesting, I think. I yield back.
Chairman Gutierrez. The gentlelady yields back.
Mr. Paulsen?
Ms. Waters. The gentlelady is yielding back her time to me.
Let me just say, Mr. Chairman, that the payday lending has
always been a real concern of mine. And you're right, I happen
to have a portion of my district where we have a lot of
lenders, and the argument is made that, you know, people depend
on this kind of lending. But I just think that 300 or 400
percent is way too high.
Let me tell you what I began to think about payday lending.
We have been dealing with subprime loans, and we refer to many
of the deals as exotic lending, where we had Alt-A loans, that
they didn't do verification on employment.
We had adjustable rate loans that were just outrageous in
the amount of money that it costs the taxpayer when they reset
with these high margins, and on and on and on. And we're
calling for regulation, and we want tighter regulation.
The same thing is going on here. We have products that are
injurious to our consumers, and we need to crack down on this.
Just as we're looking at the subprime loans, and the mess that
was created, we have a problem here with people making very
little money, who will never be able to get out from under this
kind of debt, unless we do something to crack down. Now this
has been going on for a long time.
And so, Mr. Chairman, just let me say that no matter what
the intent is, the fact of the matter is we have to resist any
attempt to make it look as if we are cracking down, when in
fact we are opening the door for more abuse.
And I will yield back the balance of my time.
Chairman Gutierrez. The gentlelady yields back her time.
Mr. Paulsen, you are recognized for 5 minutes.
Mr. Paulsen. Thank you, Mr. Chairman. And I know a lot of
the questions I had have already been asked. But I wanted to
ask Mr. McCullen first, perhaps, how would the legislation,
H.R. 1214, really impact your business? If you could just
describe how the legislation would impact what you do.
Mr. McCullen. The legislation that's being discussed here
today, if it had been in place in Louisiana last year, I would
have ended in the negative. That's why I'm here not to support
this bill.
I ask in my testimony that you implement the Louisiana
bill, because I am listening to all these different things
being said here. We don't have these problems in Louisiana,
because it's against the law. We had 24 complaints last year,
and we have over 4 million transactions.
We have a very tight, succinct bill that we're able to
operate under, and it protects the consumers. So that is why I
was against this bill.
Mr. Paulsen. I'm just curious, Mr. McCullen, then, I mean,
who would really benefit from this law if that's the case? Is
there another product that's similar to yours that you offer,
and I had mentioned this in my opening statement, but, you
know, on a widespread basis, is there any other product that's
offered that really substantially is available at a lower cost
for people?
Mr. McCullen. Not to my knowledge, no.
Mr. Paulsen. And coming from Minnesota, Mr. Chairman, it is
the case where I have talked to people in this industry, too,
that their average interest rate that they'll charge is only
9\1/2\ percent, and so a very reasonable level. Ms. Fox had
mentioned earlier her concern about triple digit APRs. And I'm
just curious, what do you think of a 99 percent APR, Ms. Fox?
Ms. Fox. It's still high. It sure beats 520 percent, which
is what they can charge in Louisiana for a single payment loan.
We think that the traditional small loan rate cap in States has
been around 36 percent. It provides for loans to consumers who
don't have a perfect credit rating under an affordable
repayment schedule. And we think that would be more beneficial
than what's being proposed here.
Mr. Paulsen. Well, and I think it's also important to point
out that it would be very beneficial for consumers down the
road to not necessarily rely on the description of an APR. I
don't think consumers understand what APR means, necessarily,
and just regulating not having that triple digit APR, that is
going to be much more easier for consumers if they understand
what real fees are. We have seen that in the credit card
industry.
Mr. McCullen, do you have a comment on that?
Mr. McCullen. I appreciate that comment, because I wanted
to bring that to the table. Most Americans do not understand
APR. I have lots of friends of mine who are personal friends of
mine, they do not understand what we do, and how we do it. When
I explain it to them, they understand that this is a flat fee.
And I also want to make a comment about APR. The American
Banking Association testimony that was before the subcommittee
on March 19th, said with regard to applying APR to overdraft
fees, and other short-term credit product, ``Any time an annual
percentage rate is calculated for a term of less than a year,
the inclusion of a fixed fee, even a modest one, will distort
and overstate the APR. The shorter the repayment period, the
greater the APR will appear in instances where there is a fixed
fee. This means that the sooner the consumer repays, the
greater the calculated APR, a difficult concept to explain to
consumers, as it appears they are paying--that paying earlier
actually increased the cost of credit.''
Mr. Paulsen. Well, and Mr. Chairman, it just points out, I
think there are some States that have done some good things,
and have some good models. And Minnesota and Louisiana might be
another case too, and I hope we consider that as the
legislation moves forward. Thank you. I yield back.
Chairman Gutierrez. Thank you.
Mr. Sherman, you are recognized for 5 minutes.
Mr. Sherman. Thank you. I'm a bit confused about using APR
as a way to determine the fairness of the fee.
Ms. Fox, I was once at my bank an hour before it opened.
Usually I would go inside to get a couple hundred bucks out of
my account, but I wanted the money an hour sooner than I could
get because, like, they were closed. And so I went to the
machine. I paid--my bank was good. They only charged me a $1
fee to get my $200 an hour early, $1 to get my $200 an hour
early.
Now that's 186,000 percent APR. Am I an idiot for paying
186,000 percent APR to pay that $1 fee just for an hour?
Ms. Fox. Was the $1 fee to borrow the money, or just a fee
for accessing it through the ATM rather than in person?
Mr. Sherman. It's a time value of money. I was going to get
the same money sooner, whether it constituted a loan for the
hour, which was then repaid to the bank without further cost or
otherwise. I mean, it's--I got my money an hour early, time
value of money, 1 hour, $200, it is 186,000 percent APR.
Ms. Fox. Well, I would never say that a Member of Congress
was an idiot, so--
Mr. Sherman. Everyone else does.
Ms. Fox. Well, I would never say that.
Mr. Sherman. Okay.
Ms. Fox. But I would say--
Mr. Sherman. Should that transaction be banned because it's
186,000 percent APR?
Ms. Fox. Well, that's not the product we're talking about
today.
Mr. Sherman. I'm asking you a question.
Ms. Fox. Okay.
Mr. Sherman. You don't get to confine your responses just
to what we're talking about today.
Ms. Fox. Truth in Lending has been the law of America for 4
decades. It requires that credit be quoted with a comparable
price, so you can compare a 1-month pawn transaction, a 2-week
payday loan, a 6-month installment loan, and a cash advance on
a credit card, and that's the price tag.
Mr. Sherman. But when you are doing things for a short
period of time, I mean--
Ms. Fox. That's right.
Mr. Sherman. --if one payday lender charges $30 to use the
money for 2 weeks, and another one charges $40 to use the money
for 3 weeks, you don't necessarily say that the higher fee is
the better deal. Time value of money is something I understand,
I'm a CPA.
Ms. Fox. Yes.
Mr. Sherman. I also understand it just doesn't make any
sense to evaluate a fee like transaction.
Ms. Fox. Well, we disagree.
Mr. Sherman. Okay. The other point I'll make is, I deal
with my constituents. They know I'm a CPA. They ask me all
kinds--the only financial transaction they do understand is
they payday loan.
Ms. Fox. Well--
Mr. Sherman. None of them understand just about anything
else, but you say, okay, you use your credit card, and you pay
most of it off, and then you use it some more. How much is that
going to cost you? They have no idea. You use your overdraft
protection. How much is that going to cost? Nobody knows.
Ms. Fox. Well, if this subcommittee would enact
Representative Maloney's overdraft bill, consumers would get
Truth in Lending cost disclosures for those loans as well, and
we think that would have a great benefit on the banks.
Mr. Sherman. Well, what I'm questioning is whether Truth in
Lending makes any sense at all for loans of less than a month
or 2 months. What you think of as great information, to my
constituents is gobbledy-gook or misleading.
Ms. Fox. Well, requiring loans to be repaid in less than
several months also doesn't make very good sense for consumers
in the income bracket who use payday loans.
Mr. Sherman. Some people only want to--I see my home girl
from the San Gabriel valley, where I grew up, Aztecs--
Ms. Guzman. Yay.
Mr. Sherman. --and I mean, were there occasions where you
needed the money for only a month, or did you always have a
need for the money for 3 months or 4 months, or longer?
Ms. Guzman. No, on that particular occasion that I
discussed earlier, I did only need it actually for 30 days.
What I did was I paid it back, because I'm not allowed to
rollover, and literally borrowed it back at that moment, again,
paying another fee, because I couldn't pay it back for 30 days.
But, you know, I was able to pay it back.
Mr. Sherman. But you only held the money for a grand total
of 30 days?
Ms. Guzman. Yes.
Mr. Sherman. Okay. So if we forced you to take the money
for 60 days, but we charged you just a little bit more, would
that help you?
Ms. Guzman. Well, it would at least give me the option of
not having to pay it back in 2 weeks. I'm just saying in my--
Congressman, in my experience, everyone's situation is
different. I do have very well-intended neighbors who would
need the loan--
Chairman Gutierrez. The gentleman's time has expired.
Ms. Guzman. Oh, I'm sorry.
Mr. Sherman. Okay. I just ask the witness not to tell
anybody in the San Fernando Valley that I actually grew up in
the San Gabriel Valley. I yield back.
Ms. Guzman. My lips are sealed.
Chairman Gutierrez. Yes. We ban rollovers in this
particular bill, and we give you 90 days to pay the money back,
so you wouldn't have had to pay the fee again.
Mr. Childers is recognized for 5 minutes.
Mr. Childers. Thank you, Mr. Chairman, and I have been
following between votes, and the earlier part of the panel, I
want to thank you all for being here from my office. And I
think this has really been touched on today, but I really
wanted to address the issue, Mr. Chairman, of regulating by the
States. And I just want to go ahead and say this.
I am from Mississippi. Mississippi is no different from all
the other States. We have varying degrees of people in need of
various amounts of loans and sizes. I come from a State, quite
frankly, that does a good job of regulating. They do a good job
of regulating banks, they do a good job of regulating consumer
loans, and they do a good job of regulating payday loans, if
that's what it is to be called.
Now at my age, I have survived many errors, let me just say
that. And there are times that I needed a little bit of money,
and there were times that I needed a lot of money. And I'm not
so sure that this is really the avenue for us to take on this.
And I will say this. I'll use my own State as an example there.
It is my belief that customer John Doe will go to the place
where he can borrow money--or Jane Doe--will go to the place
they can borrow money, for the least amount. I believe that. I
have done that in my life.
There are times that my own hometown banker probably
charged me more than my neighbor, but there were a lot of
factors. Maybe my credit wasn't as good as that time. Maybe he
thought I already owed too much money. I just--I wanted to make
that just as a statement really and--to the panel. And I
understand each of your interests, and I appreciate that. I
read what you delivered to us and I have listened to you while
in my office, in between these votes today.
But my State does a good job, and I really have nothing but
compliments for my own State. And in my State, the payday loan
companies seem to be the target, if you will, of maybe this
discussion today. The people there--and don't get me wrong, I'm
certain that there have been instances where people have been
aggrieved. It is like any industry. There are always some who
have been wronged, or believe to have been wronged.
By the same token, I saw this industry in my State, and
regardless of what I personally think about the industry, I
will say this. They stepped up and worked with the State of
Mississippi to regulate themselves to a degree, or to accept
regulation, so they could stay in business.
I'm anxious--you know, I welcome any comment from the panel
back, but I just wanted to speak, I guess, on behalf of State
regulation.
Mr. Flores. Congressman, I was just looking at my study,
and for the State of Mississippi, since you do allow payday
lending--
Chairman Gutierrez. Mr. Flores, could you put your
microphone on?
Mr. Flores. I'm sorry. The State of Mississippi, the
average consumer who has a checking account, pays $163 in
overdraft in NSF charges, compared to the national average of
over $300. So again, according to my opening statement, is
there a direct correlation? I don't think there's enough data
yet, but there's certainly an indication that we ought to look
at it in more detail.
And so the consumers in your State are paying less in
overdraft charges than consumers in many other States.
Mr. Childers. I would agree there probably isn't enough
data to say that is it, but it is--if it's a fact, it just is
what it is.
Thank you, Mr. Chairman.
Chairman Gutierrez. You're welcome.
A couple of quick questions to Ms. Fox. You said--is it
your testimony that competition will not drive down the price
of payday loans?
Ms. Fox. It has not, no.
Chairman Gutierrez. Okay. So supply and demand works
everywhere else except the payday industry.
Ms. Fox. That's right.
Chairman Gutierrez. I just wanted to make sure that was
your testimony. I can tell where you're at. And then your
testimony is that the bill would force payday lenders to change
their product.
Ms. Fox. It would give them an incentive to change their
product.
Chairman Gutierrez. So while it has nothing to do with the
driving down the price, it will change their behavior in terms
of changing their product to installment loans.
Ms. Fox. From past experience, that is likely to happen.
Chairman Gutierrez. From past experience. So it does have
on one, but not on the other.
Everyone has had an opportunity.
I would ask unanimous consent that a letter supporting the
goals of this legislation from the National Association of
Federal Credit Unions be entered into the record. Hearing no
objection, it is so ordered.
I want to thank the witnesses and the members for their
participation in this hearing. The Chair notes that some
members may have additional questions for the witnesses, which
they may wish to submit in writing. Therefore, without
objection, the hearing record will remain open for 30 days for
members to submit written questions to the witnesses, and to
place their responses in the record.
This subcommittee hearing is now adjourned.
[Whereupon, at 4:56 p.m., the hearing was adjourned.]
A P P E N D I X
April 2, 2009
[GRAPHIC] [TIFF OMITTED] T1583.001
[GRAPHIC] [TIFF OMITTED] T1583.002
[GRAPHIC] [TIFF OMITTED] T1583.003
[GRAPHIC] [TIFF OMITTED] T1583.004
[GRAPHIC] [TIFF OMITTED] T1583.005
[GRAPHIC] [TIFF OMITTED] T1583.006
[GRAPHIC] [TIFF OMITTED] T1583.007
[GRAPHIC] [TIFF OMITTED] T1583.008
[GRAPHIC] [TIFF OMITTED] T1583.009
[GRAPHIC] [TIFF OMITTED] T1583.010
[GRAPHIC] [TIFF OMITTED] T1583.011
[GRAPHIC] [TIFF OMITTED] T1583.012
[GRAPHIC] [TIFF OMITTED] T1583.013
[GRAPHIC] [TIFF OMITTED] T1583.014
[GRAPHIC] [TIFF OMITTED] T1583.015
[GRAPHIC] [TIFF OMITTED] T1583.016
[GRAPHIC] [TIFF OMITTED] T1583.017
[GRAPHIC] [TIFF OMITTED] T1583.018
[GRAPHIC] [TIFF OMITTED] T1583.019
[GRAPHIC] [TIFF OMITTED] T1583.020
[GRAPHIC] [TIFF OMITTED] T1583.021
[GRAPHIC] [TIFF OMITTED] T1583.022
[GRAPHIC] [TIFF OMITTED] T1583.023
[GRAPHIC] [TIFF OMITTED] T1583.024
[GRAPHIC] [TIFF OMITTED] T1583.025
[GRAPHIC] [TIFF OMITTED] T1583.026
[GRAPHIC] [TIFF OMITTED] T1583.027
[GRAPHIC] [TIFF OMITTED] T1583.028
[GRAPHIC] [TIFF OMITTED] T1583.029
[GRAPHIC] [TIFF OMITTED] T1583.030
[GRAPHIC] [TIFF OMITTED] T1583.031
[GRAPHIC] [TIFF OMITTED] T1583.032
[GRAPHIC] [TIFF OMITTED] T1583.033
[GRAPHIC] [TIFF OMITTED] T1583.034
[GRAPHIC] [TIFF OMITTED] T1583.035
[GRAPHIC] [TIFF OMITTED] T1583.036
[GRAPHIC] [TIFF OMITTED] T1583.037
[GRAPHIC] [TIFF OMITTED] T1583.038
[GRAPHIC] [TIFF OMITTED] T1583.039
[GRAPHIC] [TIFF OMITTED] T1583.040
[GRAPHIC] [TIFF OMITTED] T1583.041
[GRAPHIC] [TIFF OMITTED] T1583.042
[GRAPHIC] [TIFF OMITTED] T1583.043
[GRAPHIC] [TIFF OMITTED] T1583.044
[GRAPHIC] [TIFF OMITTED] T1583.045
[GRAPHIC] [TIFF OMITTED] T1583.046
[GRAPHIC] [TIFF OMITTED] T1583.047
[GRAPHIC] [TIFF OMITTED] T1583.048
[GRAPHIC] [TIFF OMITTED] T1583.049
[GRAPHIC] [TIFF OMITTED] T1583.050
[GRAPHIC] [TIFF OMITTED] T1583.051
[GRAPHIC] [TIFF OMITTED] T1583.052
[GRAPHIC] [TIFF OMITTED] T1583.053
[GRAPHIC] [TIFF OMITTED] T1583.054
[GRAPHIC] [TIFF OMITTED] T1583.055
[GRAPHIC] [TIFF OMITTED] T1583.056
[GRAPHIC] [TIFF OMITTED] T1583.057
[GRAPHIC] [TIFF OMITTED] T1583.058
[GRAPHIC] [TIFF OMITTED] T1583.059
[GRAPHIC] [TIFF OMITTED] T1583.060
[GRAPHIC] [TIFF OMITTED] T1583.061
[GRAPHIC] [TIFF OMITTED] T1583.062
[GRAPHIC] [TIFF OMITTED] T1583.063
[GRAPHIC] [TIFF OMITTED] T1583.064
[GRAPHIC] [TIFF OMITTED] T1583.065
[GRAPHIC] [TIFF OMITTED] T1583.066
[GRAPHIC] [TIFF OMITTED] T1583.067
[GRAPHIC] [TIFF OMITTED] T1583.068
[GRAPHIC] [TIFF OMITTED] T1583.069
[GRAPHIC] [TIFF OMITTED] T1583.070
[GRAPHIC] [TIFF OMITTED] T1583.071
[GRAPHIC] [TIFF OMITTED] T1583.072
[GRAPHIC] [TIFF OMITTED] T1583.073
[GRAPHIC] [TIFF OMITTED] T1583.074
[GRAPHIC] [TIFF OMITTED] T1583.075
[GRAPHIC] [TIFF OMITTED] T1583.076
[GRAPHIC] [TIFF OMITTED] T1583.077
[GRAPHIC] [TIFF OMITTED] T1583.078
[GRAPHIC] [TIFF OMITTED] T1583.079
[GRAPHIC] [TIFF OMITTED] T1583.080
[GRAPHIC] [TIFF OMITTED] T1583.081
[GRAPHIC] [TIFF OMITTED] T1583.082
[GRAPHIC] [TIFF OMITTED] T1583.083
[GRAPHIC] [TIFF OMITTED] T1583.084
[GRAPHIC] [TIFF OMITTED] T1583.085
[GRAPHIC] [TIFF OMITTED] T1583.086
[GRAPHIC] [TIFF OMITTED] T1583.087
[GRAPHIC] [TIFF OMITTED] T1583.088
[GRAPHIC] [TIFF OMITTED] T1583.089