Congressman Dennis Ross (R-FL) is very upset that the man in charge of conducting unprecedented analysis of the payday loan industry won’t agree to lie with him.
At a hearing Wednesday, Ross and fellow House Financial Services Committee members grilled Consumer Financial Protection Bureau Chief Richard Cordray on the agency’s planned federal regulations of payday lenders. Ross and dozens of other Florida delegates have signed onto legislation to derail the CFPB’s rules, and the bill would set Florida’s current state-level regulations as the model for the nation.
Critics point to the large sums payday lenders have donated to those lawmakers and to data showing that Florida’s law has done nothing to curb the abuses of a business model that extracts some $3 billion each year from the poorest places in America.
On Wednesday, Ross demanded Cordray’s agreement. “We had a terrible problem in Florida. We addressed that back in the early 2000s. We came out with a bill that I think has done a great deal of good to eliminate the predatory lending, the bad actors,” Ross said, listing off the specific rules Florida imposed. “Would you not agree that Florida by far is the gold standard when it comes to state regulation of payday loans?”
“I would not,” Cordray began to answer. Ross immediately jumped in, his voice tense.
“Why not? There’s somebody else, there’s a state out there better?” Ross asked.
“What I would say is I believe—“
“But is there a state out there better? There isn’t, is there, and that’s my point Mr. Cordray.”
Cordray pointed out that payday borrowers in Florida still face annual interest rates north of 300 percent before Ross cut him off again and changed the subject. The congressman continued to interrupt and shift goalposts throughout their exchange. “You’re sort of ignoring the point I’m making,” Cordray said as Ross talked over him.
This isn’t a credible dispute. Florida’s law is no kind of gold standard for rules that effectively protect borrowers from landing in obscenely expensive borrowing cycles. The flaws in the bill, which was reportedly written with heavy input from the industry itself, have allowed lenders to sell products in Florida that gobble up more than one third of a borrower’s next paycheck on average.
As the below chart from Pew Charitable Trusts’ extensive payday lending research illustrates, Florida’s law has delivered a worse outcome for consumers than Colorado’s approach to the issue.
CREDIT: Pew Charitable Trusts
Even in Colorado, payday loans remain an extremely expensive way to patch a temporary hole in the family budget. 121 percent APR is a usurious interest rate by any standard. But it is dwarfed by Florida’s 304 percent average. It’s literally twice as expensive for a Floridian to borrow $300 for five months from one of the firms operating under Ross’ would-be “gold standard” than it is under Colorado law.
And on a key, oft-overlooked measure of how payday lending affects borrowers, the gap between Florida’s law and Colorado’s is far wider. The average loan in Florida causes the borrower to surrender 35 percent of her next paycheck instantaneously to keep the loan afloat, while Colorado has gotten that figure down to 4 percent. That’s a key part of why Colorado’s law has succeeded in the other ways Pew demonstrates: Someone who gets to keep 96 percent of their next check is naturally in far better position to clear her debts swiftly, thus lowering the annual interest rate paid for a short-term loan to cover an emergency expense.
And Colorado has delivered these superior outcomes without depriving customers who genuinely rely on these products for lack of better options: The same share of the populace uses payday lending in each state, according to Pew’s figures.
Cordray isn’t going to come out and embrace Colorado law to combat Ross’ lie. He and his agency are now two years into a lengthy, studious process based on an unprecedented ability to collect data on the industry and analyze how various competing regulatory concepts impact outcomes for consumers. That process has led the agency toward a rule that takes the same philosophical approach Colorado did – it’s specifically designed to avoid putting lenders out of business, and to balance lending profitability with borrower affordability – though the final details of that federal package will not be out until later this year.
Payday lending is a morally complicated issue in which desperate people resort to abusive products to forestall even worse outcomes like losing the car they use to get to work or having the water shut off.
But payday lending regulation is not complicated: The industry makes almost all its revenue from the minority of its customers who almost never get out of debt, and we know how to make rules that break that abusive pattern without pushing the industry out of business and leaving the destitute to their own devices.
Florida’s law is a mirage. It’s a way to allow the industry to continue to practice as it always has, while stamping official approval onto the abusive nature of those status-quo practices.
Ross isn’t alone in pretending otherwise, of course. A number of his fellow representatives who also take tens of thousands of dollars from payday lenders have made similar efforts to derail CFPB’s work. And almost the whole Florida delegation joined as co-sponsors of Ross’s bill to forestall those federal rules – including Rep. Debbie Wasserman Schultz, the head of the Democratic National Committee and a co-author of Florida’s regulatory sleight of hand. One group of activists has labeled her “Debt Trap Debbie” over her decision to join Ross in fighting borrower protections.