[Congressional Record Volume 162, Number 53 (Thursday, April 7, 2016)]
[Senate]
[Pages S1811-S1812]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. MERKLEY (for himself, Mr. Udall, Mr. Sanders, Mr. Franken,
Mrs. Murray, Mr. Wyden, Mr. Durbin, Mr. Blumenthal, Ms. Warren,
Ms. Baldwin, Mr. Markey, Mr. Booker, and Mr. Heinrich):
S. 2760. A bill to amend the Truth in Lending Act to address certain
issues related to the extension of consumer credit, and for other
purposes; to the Committee on Banking, Housing, and Urban Affairs.
Mr. MERKLEY. Mr. President, an American historian, James Truslow
Adams, wrote a book in 1931 entitled ``The Epic of America,'' and in
this book he coined the term the ``American dream.'' He went on to say
this: ``Ever since we have become an independent nation, each
generation has seen an uprising of the ordinary Americans to save that
dream from the forces which appeared to be overwhelming and dispelling
it.''
One of those forces that has been overwhelming the effort of middle-
class, hard-working Americans to be successful is predatory lending.
Today I am specifically rising to discuss the introduction of the SAFE
Lending Act. SAFE stands for stopping abuse and fraud in electronic
lending.
The focus of this is short-term, high-interest loans, often referred
to as ``payday'' loans. These loans often have interest rates of 300
percent, 400 percent, 500 percent. The debt a family has with one of
those loans just grows and grows and grows. Consider this: If you take
out $1,000 today, a year from now, at 500 percent interest, you owe
$5,000. In 2 years you owe $25,000--an impossible sum for a family of
modest means. So these payday loans pull families into a vortex of debt
from which they cannot escape, and this vortex destroys them
financially. These are huge consequences for the parents, certainly,
but huge consequences for the children. It does a tremendous amount of
damage to American families. This is why many major religions in the
world have come out over time--over thousands a year--and said high-
interest lending destroys and shouldn't be done, but here we have it,
right here in America.
Many States, including my State of Oregon, have worked to end this
vortex of debt. They have put a cap on the interest rate. They have
stopped the every-2-week rollovers, and so they have returned, if you
will, small-dollar lending to being an affordable instrument that
doesn't destroy families. These tough State laws are under assault by
new tactics of the payday loan industry, and we need to address those
new tactics.
Specifically, the industry is starting to use an instrument called
remotely created checks. How does this work? Let's say you have your
bank account and you take out a payday loan. The dollars are put into
your bank account, and you think they are going to stay there, but now
this online payday loan company--and who knows where in the world these
people really are; they may be overseas in any remote location,
extremely difficult to find, extremely difficult to enforce our laws--
has your bank account number, and that is all they need to write a
check to themselves to withdraw the money from your account and put it
in their account, an account that is likely to be so remotely located
no one can enforce the State laws.
In other words--let me say this again--the payday lender, once they
have your checking account number, can reach into your account without
your permission and take your money out; thereby, having the ability to
bypass the State laws. An Oregon law may say if you have interest rates
over those established by Oregon law your loan is uncollectible; that
it is illegal
[[Page S1812]]
in our State. Well, these online predatory payday lenders do not care
that it is illegal in Oregon. They have your account number, and they
are going to reach in and take your money illegally.
That is not the only predatory practice that is evolving. These
payday loan companies have also established a practice whereby instead
of putting money into your bank account, they give you a prepaid card.
This prepaid card looks very convenient. You use it like a credit card,
a debit card, and we are familiar with that in America, but here is the
ringer. They put fees on these cards that add to the 300-percent, 400-
percent, or 500-percent interest rate that is already destroying
families, particularly over balance fees.
You may not know whether your card has $20 or $30 or $50 left on it.
Some of these prepaid cards, in other parts of the financial industry,
charge for all kinds of things. They charge you to call and ask what
your balance is. They charge if you call and ask a question about how
the card works or even what the fees are. They charge a fee just for
asking what the fees are. Some of them charge a fee every time you use
the card. Some might charge an additional monthly fee, but particularly
these prepaid payday loan cards are notorious for their overbalance
fees.
Let us assume you have perhaps $50 left in your account, you buy
something for $52, and maybe immediately you get charged a $35 fee,
which they can reach into your account and take, but then that is an
overdraft fee on the bank, so the bank is now charging you a fee. Then,
because you don't know it is an overdraft because they didn't turn down
the transaction, you buy a pack of gum for 50 cents, and there is
another $35 fee. You buy a hamburger at Burger King for lunch, and
there is another fee. So you can see how these predatory fees line up
very quickly on top of the 300-percent, 400-percent, or 500-percent
interest rates.
So here is the thing. State after State has said these are destroying
families and we are going to act. In fact, in the U.S. Senate years ago
we acted to protect military families from these predatory loans. The
admirals and generals came to Capitol Hill to testify. They said: At
our military bases these predatory payday loans are destroying our
military families, and it is not just their finances. When their
finances are destroyed, relationships are frayed, children's
opportunities are damaged. We cannot have this type of terrible impact
on our military families. So we established a national cap of interest
on these short-term loans.
It is good we did. It is good we protected our military families from
these abusive, destructive practices, but if these practices are so
damaging to families in the military, aren't they equally damaging to
families who are not in the military? Shouldn't we apply the same
protection to every American family we apply to a military family?
Don't we value the success of every American family more than we value
protection for legalized loan sharking? Certainly we should, in this
Chamber, extend to all families in America the same protection we gave
to military families. Until we do that, we should at least make sure
the Federal framework requires honoring the tough laws passed by State
after State after State to stop these practices. I think the total is
about 19 States at this point.
That is why I introduced the SAFE Lending Act today. The SAFE Lending
Act--stop the abuse and fraud in electronic lending. This act does a
couple of key things. First of all, it says these remotely created
checks in which a company reaches in and takes your money without your
permission--those are banned. You regain control of your checking
account. Second, the legislation bans the overdraft fees on these
prepaid payday loan cards and other predatory fees established through
the Commission. Third, it says that all small-dollar lenders have to
register in order to be monitored by their States so they are not in an
unregulated world out there without people even knowing they exist.
Furthermore, it says that every lender of every type has to abide by
the State laws. It doesn't matter whom they are regulated by. Finally,
it bans lead generators.
Now, what is a lead generator? A lead generator is a fake Web site
that pretends it is a payday loan company, offers you a product, and
their whole goal is to get your bank account number. Again, once they
have that bank account number, they can reach in and take funds out of
your account. It is incredible that this is true; that you don't have
to sign the check. They basically just use your number and ask to take
away the money from John Consumer or Jane Consumer and give it to us,
and the bank complies and does it. As amazing as that sounds, that is
the way the banking system works. That is what these remotely created
checks do.
So we to make sure that regardless of what your financial regulator
is, you have to abide by the State rules, and we ban these lead
generators that are fishing for these bank account numbers. Once they
have them, they sell them to the lending industry, to the payday loan
industry, and who knows what other hands these numbers end up in.
I was surprised a couple of years ago when I noticed a charge on my
bank account that wasn't something that either my wife Mary or I had
purchased from a store we don't go to. I looked at it carefully and
discovered the number of the check was out of the order of my
checkbook. So I pulled up the copy of the check on the computer,
looking through my account on the computer, and I could see the number
matched my account, but the name on the check didn't match my account,
the address didn't match my account, and the signature didn't match my
signature. None of it matched. The only thing on this check was the
number of the bank account that matched my bank account, and that is
all that is required for someone to reach in and take money out of your
account.
That type of fraud is surprising as well, but it reinforces the point
that once an online electronic payday loan company has your number,
they can reach in. That is all they need to take the money out of your
account. So we are going to ban these lead generators as another piece
of this predatory profile of the electronic payday loan industry. It is
why I am introducing the act.
I greatly appreciate my cosponsors on this act, and I would like to
thank them all. They are Senator Tom Udall, Senator Bernie Sanders,
Senator Patty Murray, Senator Dick Durbin, Senator Dick Blumenthal,
Senator Elizabeth Warren, Senator Tammy Baldwin, Senator Ed Markey,
Senator Ron Wyden, and Senator Cory Booker. Thank you to all of my
colleagues who care a lot about ending predatory financial transactions
that strip billions of dollars out of hard-working Americans' accounts.
We have a lot of work to do on this. We have accomplished some. There
is much more to be done. Certainly, when James Truslow Adams said that
individuals of each generation will have to stand and fight against
practices designed to destroy the American dream, he was talking about
things such as this--practices that proceed to undermine the success of
America's working families. Let us stop those predatory practices in
their tracks and pass the SAFE Lending Act.
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