[Congressional Record (Bound Edition), Volume 155 (2009), Part 5]
[Extensions of Remarks]
[Page 6061]
[From the U.S. Government Publishing Office, www.gpo.gov]




                     PAYDAY LOAN REFORM ACT OF 2009

                                 ______
                                 

                         HON. LUIS V. GUTIERREZ

                              of illinois

                    in the house of representatives

                      Thursday, February 26, 2009

  Mr. GUTIERREZ. Madam Speaker, I rise today in support of the ``Payday 
Loan Reform Act of 2009.'' During turbulent economic times like these, 
many Americans are searching for ways to meet their financial 
obligations. It is unfortunate that some in the financial services 
industry have actually profited from the financial pain of hard-working 
citizens who are doing their very best to provide for their families. 
This Congress should not and will not sit back and watch that happen.
  For more than a decade, I have been concerned about my constituents 
becoming trapped in the cycle of debt caused by unfair payday loans. 
Consumers sometimes prefer these loans because the credit history 
requirement imposed by traditional banks is waived. Unfortunately, 
those who most need these loans are often the least able to repay them. 
The consumer is then subjected to exceptionally high interest rates, 
ranging from 261 percent to 913 percent annually.
  The ``Payday Loan Reform Act of 2009,'' which I am introducing today, 
provides significant new federal protections for payday loan consumers 
by restricting or prohibiting certain predatory payday loan terms and 
lending practices. The bill focuses on the two major concerns with 
regard to payday loans: the fees charged and the ``cycle of debt'' that 
occurs when consumers are not able to immediately repay their loans.
  First, the bill caps payday loan fees and interest rates at a total 
of 15 cents for every dollar borrowed. This fee and rate cap is lower 
than the fees allowed in 23 states, and would save consumers roughly 
$250 million annually through federally mandated lower fee levels. 
Undoubtedly, many in the payday industry will claim that fee and rate 
caps this low will drive lenders out of business. However, this fee is 
high enough to allow lenders to continue making such short-term credit 
advances, while at the same time providing consumers a credit option 
that is less expensive than many credit card fees and rates, and 
substantially less expensive than overdraft protection charges through 
banks.
  The second major concern addressed in this bill relates to the 
``cycle of debt'' that too often traps consumers when they cannot repay 
their payday loan when first due. As a result, many payday lenders 
force borrowers to rollover their payday loan or obtain a new loan to 
pay off the initial loan, while piling on additional fees. The ``Payday 
Loan Reform Act of 2009'' prohibits these rollovers (i.e., extensions 
of the loan term in exchange for an additional fee).
  Under the bill, payday lenders would be banned from rolling over 
loans, and they would be required to give consumers the option of 
entering into a repayment plan in the event that they could not repay 
their loan when due. The repayment plan will allow consumers to repay 
the loan over an extended period of time without any additional fees or 
other charges whatsoever. The bill's repayment plan requirements are 
generally far stronger than those found in the few state laws that 
mandate such plans.
  These three key provisions--capping fees, prohibiting rollovers and 
requiring extended repayment plans--would supersede state law 
provisions when such state provisions are less consumer-friendly. In 
all other areas, the bill's requirements would provide a minimum 
national standard for consumer protections, with states free to enact 
tougher payday lending restrictions.
  The legislation also mandates that consumers receive special warnings 
and disclosures, stating that these short-term payday loans are only 
intended for short-term needs, that credit counseling should be 
considered, that no criminal prosecution can occur for nonpayment nor 
may security interest be taken in the consumer's personal property, and 
that an interest-free, no-cost repayment plan will be available if 
needed. These disclosure notices must be given both in the loan 
documents before obtaining a payday loan and in similar disclosures 
posted in the lender's public business area, Web site and/or printed 
advertising and solicitation materials. Disclosures must be in English 
and in Spanish, as well as the language in which the loan was 
negotiated.
  Finally, the legislation guarantees consumers additional protections 
relating to various potentially abusive terms and practices currently 
used by payday lenders. For example, I have already explained that the 
bill prohibits lenders from taking a security interest in a consumer's 
personal property or seeking to have the consumer prosecuted in 
criminal court for nonpayment of the loan. However, it would also 
prohibit unfair mandatory arbitration clauses and grant consumers the 
right to rescind a loan by notifying the lender in writing and 
returning the money no later than the end of the second business day 
after the loan agreement was executed.
  Specifically, additional penalties of up to $10,000 per violation 
could be imposed; and state attorneys general, as well as consumers, 
will be allowed to enforce the Act. Additionally, states will be free 
to provide consumers with additional or greater protections than are 
provided for in the ``Payday Loan Reform Act of 2009.''
  I urge my colleagues to support this important consumer protection 
bill.

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