Payday lenders and consumer advocates squared off in Kansas City on Thursday morning over newly proposed federal lending rules that satisfied neither side.
An audience of more than 1,000 rained applause in equal measure on payday industry officials and payday loan opponents inside the Music Hall at Municipal Auditorium. The Consumer Financial Protection Bureau had assembled experts for a two-hour panel discussion on the rules it had made public only hours earlier.
Sign-in sheets showed employees of several lenders, including Speedee Cash, Check Into Cash and Advance America, were there. At one point, boisterous opponents of the industry triggered a request to allow all to speak without fear.
“We’ve been fighting payday lending for quite some time,” said the Rev. W.T. Edmonson Sr., who is with Faith Voices for Jefferson City and made the trip to help support consumer protection.
Richard Cordray, director of the Consumer Financial Protection Bureau, spelled out key elements of the proposed rules that many in the audience had not yet seen.
One key rule would require payday and similar lenders to make sure their customers would be able to repay the loans and still be able to meet basic living expenses and major financial obligations.
For lenders, the proposed rules threaten to shut out borrowers from the credit they need. For others, they leave open loopholes that the industry could use to skirt the protections intended for consumers.
“We have seen the devastation that predatory lending has wrought,” said Galen Carey, vice president of government relations for the National Association of Evangelicals, who served on a panel that discussed the rules inside the Music Hall.
The bureau chose Kansas City to make its public pitch for the proposed rules, which have been in the making for more than a year. Kansas City has been linked to the online payday loan industry in particular, and area payday lenders Richard Moseley Sr. and Scott Tucker, who is a professional race car driver, are under federal indictment on charges that they have denied.
Like some others on the panel, Carey said that what consumers need most — a cap on the interest rate lenders can charge — is outside the powers that the bureau has. He wants Congress to limit loans to a 36 percent interest rate, similar to rules that currently govern loans to members of the military.
“That won’t work either. Loans below $3,500 will cease to exist,” said Bill Himpler, executive vice president of the American Financial Services Association, which represents small installment loan providers.
Mayor Sly James kicked off the event with his own prescriptions for the ills that he said predatory lending causes. He said that lenders deserve a legitimate profit but that borrowers deserve more time to repay loans they have trouble meeting and lawmakers should cap “these outrageous triple-digit interest rates” some loans carry.
“Predatory lending is simply one of those things we need to fix,” James said.
The Consumer Financial Protection Bureau set out the new rules in an attempt to “clean up unfair, deceptive or abusive practices that harm consumers,” Cordray said. He said those lending practices trap some consumers into a sequence of increasingly expensive loans, each made to pay off the previous loan.
He found support from the Rev. Anita Gould, a banker turned minister who served on the panel of consumer advocates and industry officials. She equated the debt trap that payday lending sets to a death trap.
Gould said the proposed rules help address one key problem, namely the industry’s nonexistent loan standards that essentially require customers to show only that they have a checking account and are breathing.
“These lenders, they target communities of color. They target communities that already are vulnerable,” said Gould, the executive director of Missouri Faith Voices and Quinn Chapel in Jefferson City.
Amy Keaton of Spring Hill said during a public comment session that desperation led her to take out a $200 payday loan a year ago.
“You get into that mindset when you are struggling that tomorrow will take care of tomorrow,” Keaton said. “So I took out the loan, even though I knew that it wasn’t a very good idea.”
Keaton said the lenders expected a payment of $297, and in return she would receive $250 for her bills. The amount she actually ended up paying escalated.
“I was paying almost $100 a month just to take my own paycheck home,” she said.
Keaton will have her debt paid off this September with the help of Catholic Charities.
Cordray started the event by citing action the agency took to shut down an illegal “cash-grab scam” by the Kansas City-based Hydra Group in 2014.
This drew an exception from Darrin Andersen, president and chief executive of Overland Park-based QC Holdings Inc., which operates the largest payday lending business in Missouri.
“It’s simply unfair to compare responsible lenders who abide by federal, state and local laws with the criminal element,” Andersen said, drawing applause.
Andersen objected to the new rules that could lead many legitimate small-loan providers out of business. Consumers still would need credit and would be forced to deal with illegal lenders, he said.
Payday loans are quick cash advances that lenders typically require customers to repay on their next payday, often by writing a check for that future date or by allowing lenders to directly debit their accounts for payment. Interest, fees and other costs balloon the average effective borrowing cost to consumers to nearly 400 percent, the consumer bureau has said.
Under the bureau’s proposal, payday lenders would have to make sure their customers can repay their loans and “still meet basic living expenses and major financial obligations.” This rule imposes what the agency called the “full payment test” and would make it more difficult for customers to reborrow or refinance the same debt.
Its proposals also would require payday, auto title, deposit advance and some other lenders to use credit reporting systems, limit repeated unsuccessful efforts to debit customers’ accounts for payment, and offer principal payoff options and longer loan choices.
Kerry Smith, with Community Legal Services of Philadelphia, supported the bureau’s proposal to require lenders to give customers a full payment test to see that they can repay without disrupting their lives. She objected to rules that allow some loans to escape that test.
“We can’t support any exceptions to that standard,” she said. “Any exception is sending a message that the CFPB has sanctioned a whole category of high-cost, predatory loans as desirable and safe when in fact they are harmful and dangerous to borrowers.”