Luis Gutierrez: Representing Illinois' Fourth District

Media Contact: Rebecca Dreilinger (202) 225-8203

April 2, 2009

Subcommittee on Financial Institutions and Consumer Credit Hearing on “H.R. 1214, the Payday Loan Reform Act 2009”

Statement of Rep. Luis V. Gutierrez

Over the last two decades payday lending has become a very controversial source of credit in many of our communities.  The payday loan industry has grown in size from roughly 300 offices in 1992 to over 24,000 last year. 

As our constituents are faced with even tougher economic conditions during this recession, they are more and more likely to turn to the services offered by the payday lending industry to pay for emergency car repairs, an unexpected doctor’s bill and even groceries for their families.  Many of these families have been ignored or shut out of the mainstream financial services industry and have nowhere else to turn for credit.

The last hearing on payday lending in front of the House of Representatives was held in March of 2007, and much has changed in those two years.  More states have enacted protections against abusive payday loan practices by enacting rate caps or by banning payday lending altogether. 

A select few states, like New York, North Carolina, Pennsylvania and West Virginia, have banned payday lending altogether, but many states do not offer their citizens even a decent level of protection against abusive payday practices.  And seven states fail to have ANY cap on small loan rates. Missouri, for example, has an APR cap as high as 1,955 percent. 

While I have and will continue to support consumer groups’ tireless efforts to eliminate abusive practices in the lending industry, they are fighting an uphill battle against better funded lobbyists in states like Delaware, New Hampshire and Wisconsin, where there is no rate cap at all.

As we can see from this chart that separates the states into three classes, those that have banned payday lending, those that cap interest rates for payday loans at 15 percent (or 391 percent APR) and those that either have no cap at all or have a cap in place that exceeds 391 percent.  The goal of my bill is to move all 23 of the states in the far right column, over to the middle column.  Then the consumer groups will have a realistic opportunity to work their magic and move as many states as possible over to the far left column.  By the way, that column on the far right represents almost 113 million Americans that would be helped by my bill.

The current state of affairs for these consumers is unacceptable, and Congress would be derelict in its duties if we allowed them to remain unprotected from abusive and predatory lending.

H.R. 1214, the Payday Loan Reform Act of 2009, creates significant protections from abusive payday practices by preventing rollovers and freeing consumers from the debt trap by mandating a cost-free 90 day repayment plan.  The bill lowers the effective APR of a payday loan to 48 percent, or 15 cents for every dollar loaned.  This is a rate that is lower than 23 current state rate caps, including California, Colorado, New Hampshire and even my home state of Illinois.  My legislation would also prohibit unfair mandatory arbitration clauses, increase disclosures and honor all existing stronger state protections by creating a federal floor on which stronger laws can then be built. 

We may hear from the consumer groups today that a similar law that was passed in Illinois has been a failure.  But according to the State Department of Financial Institutions, Illinois’ 15.5 percent rate cap has already saved consumers in our state over $35 million since its enactment in December of 2006.  My bill would move that rate cap even lower.

I recognize that my bill is not a cure-all for this issue.  My intent with H.R. 1214 is to give the efforts to protect consumer rights a boost by creating a minimum level of protection that all consumers will enjoy.  This legislation would lower the APR cap for nearly 113 million Americans immediately upon its enactment.  Despite complaints from the industry that the bill sets rate caps too low and assertions from consumers that the bill does not go far enough, I think that improving protections for 113 million consumers is a significant step in the right direction.

The status quo in the payday lending industry is unacceptable.  The Payday Loan Reform Act says “NO” to the status quo. It would protect millions Americans from abusive lending practices in one fell swoop.  I look forward to hearing the testimony of our panelists and also look forward to a lively debate on this controversial issue.