Would Proposed Federal Law Give High-Interest Lenders a ‘Free Pass’?

A proposed federal law is stirring up controversy, with critics claiming that it gives high-interest lenders a “free pass” to charge triple-digit interest rates.

The Financial Choice Act of 2017 aims, in part, “to create hope and opportunity for investors, consumers and entrepreneurs,” according to the proposed federal legislation. But buried within it is a single sentence that could create “hope and opportunity” for so-called predatory lenders at the expense of consumers.

This sentence is found on page 403 of the nearly-600-page proposed law and places restrictions on the Consumer Financial Protection Bureau, a federal agency. It reads:

“The Agency may not exercise any rulemaking, enforcement, or other authority with respect to payday loans, vehicle title loans, or other similar loans.”

The Financial Choice Act

The Financial Choice Act of 2017 was introduced in the U.S. House of Representatives on April 26 and finished working its way through numerous House committees on May 25. While no action has been taken since then, the full House could vote on the legislation as early as this week, the Los Angeles Times reports.

The act is the latest attempt on the part of Republicans to roll back financial regulations established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. See “Consumer Protections Under Threat From Executive Order” for a broader overview of the recent history of Republican efforts to this end.

Democrats spearheaded the Dodd-Frank Act in an attempt to protect consumers in the wake of the Great Recession. Among many other changes, the federal law led to the creation of the Consumer Financial Protection Bureau, or CFPB.

‘Payday loans, vehicle title loans, or other similar loans’

Under the Dodd-Frank Act, the CFPB has jurisdiction over various types of lenders, including payday lenders, as House Republicans note in their comprehensive summary of the Financial Choice Act.

As also noted by House Republicans, the CFPB has used that jurisdiction to propose a federal regulation on payday, vehicle title and certain other high-cost installment loans.

But the sentence on page 403 of the Financial Choice Act could change that. As Diane Standaert, director of state policy for the nonprofit Center for Responsible Lending, tells Consumerist:

“It’s a shocking provision. Payday lenders charge triple-digit interest rates, and Congress is proposing to give them a free pass.”

Additionally, Standaert tells the Los Angeles Times that lawmakers are “trying to sneak in that provision. It seems like they hoped no one would notice.”

We cite payday loans and car title loans among the dumb borrowing options to avoid in “9 Dumb Ways to Borrow Money, and 4 Better Choices.”

As the article details, payday loans tend to have exorbitant interest rates — as high as 400 percent. Car title loans can end with the borrower losing their vehicle — on top of having to pay exorbitant fees.

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