Report: Consumer Protection

Show Me The Money

A Survey Of Payday Lenders And Review Of Payday Lender Lobbying In State Legislatures
Released by: U.S. PIRG

Throughout the 1990s, the state PIRGs and the Consumer Federation of America (CFA) have documented the effects of financial deregulation on American consumers. One consequence of deregulation of interest rates, high credit card interest rates and high bank fees has been the rapid growth of the so-called predatory lending (or fringe banking) industry, which includes check cashing outlets, payday loan companies, rent-to-own stores, high cost second mortgage companies, sub-prime auto lenders, traditional pawn shops and the growing business of auto title pawn companies. This report examines payday lending in detail.

The report (Section 3) updates a 1998 CFA survey on the consumer costs of payday lending and includes a survey of 230 payday lenders found in 20 states. It finds that payday lenders continue to make short term consumer loans of $100-400 at legal interest rates of 390-871% in states where payday lending is allowed. More disturbingly, the report finds that payday lenders are exploiting new partnerships with national banks to make payday loans in states, such as Virginia, where the loans are otherwise prohibited by usury ceilings or other regulations.

Second, the report (Section 4) examines the status of payday loan laws and proposed legislation around the country.

Finally, the report takes a detailed look (Section 5) at payday lender lobbying and influence peddling in three state legislatures. Disturbingly, the report finds that the payday lenders are following the same lobbying strategy that the rent-to-own industry successfully used in the 1980s and early 1990s to enact its preferred version of legislation in nearly every state. Payday lenders are hiring high-priced hired guns to seek enactment of weak, pro-industry legislation. So far, the strategy is working. Already, the payday lenders have been granted a safe harbor from usury laws in 23 states and the District of Columbia and flourish in states with no usury laws to prevent rate gouging.

If the payday lenders win, consumers, especially low-income consumers, lose. The predatory lenders’ goal is to enact state legislation exempting their high-cost, high-risk loans from laws that apply to small loans. Although the report documents how the payday lenders have so far been successful in nearly half the states, increased scrutiny may slow their rapid growth.


  • States should retain and enforce small loan rate caps and usury laws to protect consumers from exorbitant small loan rates charged by payday lenders.
  • States with no small loan or usury cap should enact a cap on small loans and keep licensed lenders under state credit laws. States that have already legalized payday lending should, at a minimum, lower permissible rates and strengthen consumer protections based on the CFA/National Consumer Law Center (NCLC) model act.
  • Congress should stop the national bank regulators, notably the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), from allowing nationally-chartered banks and thrifts to provide protection for payday lenders from state consumer protection laws, especially since no federal law regulates their activities. Even better, Congress should close the bank loophole, either by enacting a federal usury law that applies to banks or by prohibiting FDIC-insured financial institutions from making loans based on personal checks held for deposit. To set minimum standards for state laws and to rein in the banks, Congress should enact the "Payday Borrower Protection Act of 1999" (HR 1684) sponsored by Rep Bobby Rush (D-IL).
  • More states should enact tough campaign finance reforms and lobbying disclosure laws. States should put the data on the Internet to enable citizens to evaluate influence peddling by special interests.

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