Report finds that payday lenders skirt state laws

The Democratic staff of the House Financial Services Committee issued a report yesterday on compliance with state payday lending laws. Entitled “Skirting the Law: Five Tactics Payday Lenders Use to Evade State Consumer Protection Laws,” the report finds that state-level regulation of the payday lending industry is insufficient and concludes that strong federal consumer protections are needed.

Because of the history of abuse in payday lending, many states have attempted to restrict payday loans to protect consumers. The staff press release explains that the report highlights lending practices in five states:

  • In Ohio, which has some of the most stringent small-dollar lending laws in the country, payday companies circumvent regulation by registering as mortgage lenders, which are not subject to the same restrictions.
  • In Texas, payday lenders pose as separate but affiliated entities that charge additional fees and interest for referring customers to the lender, allowing them to exceed the state’s 10 percent cap on personal loans.
  • In Florida, the state’s 24-hour cooling off period serves to trap consumers in a cycle of debt as payday lenders push borrowers to take out multiple payday loans during the same pay period.
  • In California, lenders use online lending to broker payday loans to consumer without first obtaining a state business license or complying with state regulations on loan terms.
  • In Colorado, payday companies claim tribal ownership to avoid compliance with state law.

The press release, with links to the full report and to the executive summary, is here.

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