# Payday Lending



Des Moines City Council adopts moratorium on payday lending

The Des Moines City Council voted 6-0 today to impose a six-month moratorium on new payday lending operations and pawn shops.

City leaders will spend the next 180 days examining long-term zoning regulations on such businesses. The action was taken partly in response to concerns voiced by neighborhood leaders and business owners.

Plans to open new Pawn America shops on Merle Hay Road and SE 14th Street prompted the City Council to act. Ideally, Iowa would have enacted stronger regulations on the payday lending industry long ago, because the industry's business model depends on trapping borrowers in cycles of debt. Some Iowa Democrats tried to pass new regulations on payday lending during this year's legislative session, but unfortunately the bill didn't have the votes to get out of subcommittee before the first "funnel" deadline.

After the jump I've posted Iowa Citizens for Community Improvement's reaction to today's news. Iowa CCI was one of several organizations that urged the legislature to act to protect consumers from payday lenders.

It's not yet clear whether payday lending restrictions will be part of the federal financial reform legislation Congress is now considering.

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Democrats, please get payday lending reform right

Key Democratic lawmakers will push for new limits on payday lending during the Iowa legislature's upcoming session, which starts on January 12. State Senator Joe Bolkcom, who chairs the Senate Ways and Means Committee, called for restricting the "loan shark rates" the industry typically charges. The Iowa Catholic Conference also supports limiting the interest rate for payday loans to 36 percent. That's welcome news. Although 36 percent interest is still quite high, it's a lot better than the 300 to 400 percent interest rates payday lenders are in effect currently charging customers.

In 2007, the Iowa legislature had smaller Democratic majorities yet managed to pass a bill capping interest rates on car-title loans at 21 percent. (Former Governor Tom Vilsack and Attorney General Tom Miller had advocated that reform for a long time, but Republican leaders refused to allow a vote in the Iowa House when they controlled the chamber.)

In theory, it shouldn't be hard for House Democrats to find 51 votes out of their 56-member caucus to pass payday lending reform. However, at yesterday's press conference with Senator Bolkcom, State Representative Janet Petersen expressed doubt that an interest rate cap could pass the House Commerce Committee, which she chairs.

I hope we're not in for another round of a few Iowa House Democrats blocking legislation that would serve the public interest. More thoughts on this issue are after the jump.

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Iowans split on party lines over Wall Street reforms

On Friday the House of Representatives approved The Wall Street Reform and Consumer Protection Act by 232 to 202. All three Iowa Democrats (Bruce Braley, Dave Loebsack and Leonard Boswell) voted for the bill. Tom Latham and Steve King joined their Republican colleagues, who unanimously voted no. A press release from Braley's office summarized key provisions:

-      Creation of a Consumer Financial Protection Agency (CFPA) to protect Americans from unfair financial products and services.

-       Creation of an oversight council to identify and regulate large financial firms whose collapse would place the entire financial system at risk.

-       Establishes a process for dismantling institutions like AIG or Lehman Brothers that protects taxpayers and ends bailouts.

-       Enables regulators to prohibit excessive executive compensations.

The "unfair" financial products to be regulated by the Consumer Financial Protection Agency include mortgages, credit cards and "payday" lenders. I would particularly like to see a crackdown on payday lending. Those high-interest loans have been shown to trap low-income borrowers in a cycle of debt.

The bill also includes some regulation of the derivatives market for the first time, but it sounds as if those provisions didn't go far enough:

Consumer advocates cheered the survival of the consumer protection agency but said the overall legislation fell short, especially in the regulation of complex investment instruments known as derivatives.

The legislation aims to prevent manipulation and bring transparency to the $600 trillion global derivatives market. But an amendment by New York Democrat Scott Murphy, adopted 304-124 Thursday night, created an exception for nonfinancial companies that use derivatives as a hedge against market fluctuations rather than as a speculative investment. The amendment exempted businesses considered too small to be a risk to the financial system.

A Democratic effort to make more companies subject to derivatives regulations and to end abusive-trading rules failed.

When the Obama administration first proposed a package of regulations, it called for regulations of derivatives without any exceptions. But a potent lobbying coalition that included Boeing Co., Caterpillar Inc., General Electric Co., Coca-Cola and other big companies persuaded lawmakers to dilute the restrictions.

"It's a weakness in the bill and a win for Wall Street," said Barbara Roper, director of investor protection for the Consumer Federation of America. "Hedge funds and others that are not bona fide hedgers of commercial risk will slip through this language."

Although I'm disappointed that Congressional Democrats didn't pass a stronger bill, I am disgusted by House Republican leaders who "met with more than 100 lobbyists" last week in a desperate attempt to derail any regulation of these practices.

Representative Boswell worked on the derivatives regulations, and a statement from his office on December 11 expressed pride in "the work that the Agriculture Committee did to bring greater oversight and transparency to the over-the-counter derivatives market while balancing the interests of Iowa's farmers and business owners who utilize these markets to hedge operations costs and lock-in commodity prices for responsible business planning."

After the jump I've posted part of this statement, which includes written remarks Boswell submitted regarding the derivatives regulations.

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