[Congressional Record (Bound Edition), Volume 152 (2006), Part 6]
[Extensions of Remarks]
[Page 7865]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTRODUCTION OF THE FEDERAL PAYDAY LOAN CONSUMER PROTECTION AMENDMENTS 
                                OF 2006

                                 ______
                                 

                             HON. TOM UDALL

                             of new mexico

                    in the house of representatives

                        Wednesday, May 10, 2006

  Mr. UDALL of New Mexico. Mr. Speaker, I rise today to introduce the 
Federal Payday Loan Consumer Protection Amendments of 2006. This 
legislation prohibits federally insured institutions from engaging in 
high-cost payday loans and expands protections for consumers in 
connection with making these loans by uninsured entities.
  It is well known that payday lending is a rapidly expanding form of 
high-cost, short-term credit. Studies indicate that the average annual 
percentage rate on payday loans ranges from 390 to 780 percent for a 
two-week loan. Let me repeat that: the average annual percentage rate 
on payday loans ranges from 390 to 780 percent. Additionally, typical 
payday loan customers take out between eight and twelve loans per year 
from a single lender.
  I believe lending that fails to assess a borrowers ability to repay, 
that requires consumers to write checks on insufficient funds and that 
encourages perpetual debt is unacceptable. However, many of the laws 
pertaining to payday lenders are dealt with at the State level. One 
area, however, where the Federal Government has an important role to 
play is with what are known as ``rent-a-banks.'' Rent-a-banks are banks 
that partner with payday lenders to make single-payment and installment 
loans. These arrangements are designed to allow payday lenders to evade 
small loan laws in their respective States.
  As such, my bill prohibits insured financial institutions from making 
payday loans, either directly or indirectly. It prohibits them from 
making loans to other lenders so that they can, in turn, make, 
refinance, or extend payday loans. In addition to prohibiting rent-a-
banks, my legislation seeks to ensure that those individuals who choose 
to take out a loan with a high interest rate know that they are doing 
so. Consumers should be aware that they are borrowing with an unusually 
high interest rate. My legislation requires the Federal Reserve System 
to conduct a study to determine the most effective way to require all 
credit applications that have an annual percentage rate higher than 
thirty-six percent to include a high-interest warning label.
  Last year, despite my opposition, Congress passed the Bankruptcy 
Abuse Prevention and Consumer Protection Act, which only addressed the 
personal responsibility of debtors. While I fully concede that 
individuals must take greater responsibility for their debt, I also 
feel that the lending industry should be held accountable for targeting 
those individuals who are unable to pay off their debts. We must 
address both irresponsible borrowers and lenders to stop the cycle of 
debt that has enveloped many Americans.
  I urge my colleagues to support this legislation.

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