Dodd-Frank Replacement Bill Gives 'Free Pass' To Payday Lenders

NPR's Ari Shapiro speaks to David Lazarus of the Los Angeles Times about his column describing a section near the end of the Financial Choice Act — Dodd-Frank Act replacement — that would protect payday and car title lenders from federal oversight. The House may vote on the legislation within the next two weeks.

ARI SHAPIRO, HOST:

Republicans have promised to undo Dodd-Frank, the law that Congress passed to regulate markets after the 2008 financial crisis. The House is considering a replacement bill called the Financial Choice Act. We're going to look now at one line buried deep in that bill. LA Times columnist David Lazarus says that line is a free pass for payday and car title lenders. And David Lazarus joins us now. Welcome to the program.

DAVID LAZARUS: Thank you very much.

SHAPIRO: This bill is 589 pages long, and the sentence that you write about is on page 403. Do you have it there? Will you read it for us?

LAZARUS: I do have it here. And the sentence is this - that federal authorities, quote, "may not exercise any rulemaking, enforcement or other authority with respect to payday loans, vehicle title loans or other similar loans."

SHAPIRO: Break apart that phrase for us - payday loans, vehicle title loans or other similar loans. What exactly are those?

LAZARUS: What we're talking about here are the short-term loans that, in theory, are designed to help people who are in a financial fix to get out of it. These are loans that typically you would, you know, ideally take out for only two weeks then you pay it back - no harm no foul. The reality is that people who turn to these loans of last resort generally speaking have a hard time paying them back. And that's why advocates say they get trapped in endless cycles of debt. And we know this because the Consumer Financial Protection Bureau looked into this and discovered that 19 million U.S. households have to resort to these payday loans just to get by. And of that number, about 70 percent of borrowers have to take out at least a second or a third loan just to pay off the first loan. And so what you end up doing is paying many, many times the size of the original loan just in payments and interest and fees.

SHAPIRO: You mention the Consumer Financial Protection Bureau, the CFPB, which is taking steps to regulate these businesses. What exactly were they doing?

LAZARUS: The Consumer Financial Protection Bureau is proposing rules that are fairly common-sense rules. For example, they require that payday lenders do some due diligence in advance to make sure that a borrower can repay the loan and meet basic living expenses. The proposed rules also would make it more difficult for these lenders to give loans to the same person over and over and over again. These are fairly common-sense rules, and yet, the payday lending industry is completely in a tizzy about this and has been lobbying ferociously to protect their livelihood.

SHAPIRO: And in your column, you draw connections between Congressman Jeb Hensarling, Republican of Texas who wrote this bill, and the financial services industry, specifically payday lenders. Explain how they're connected.

LAZARUS: Well, you know, this is one of those there's some smoke but is there fire sorts of things. Representative Hensarling is the chairman of the House Financial Services Committee. And as you noted, he's also the author of the Choice Act. And he has received generous donations from the very industries that he has overseen. And I've looked into the contributions to Representative Hensarling, and in the 2014 election cycle, the payday lending industry donated about $15 million to various political causes. The top individual recipient of the payday lending industry money was, yes, Representative Hensarling with $210,500.

SHAPIRO: What did his staff tell you when you asked about this connection?

LAZARUS: Well, they said there's no quid pro quo. They said that the generous donations from both payday lenders and banks had no influence whatsoever on the legislation. I asked the Consumer Financial Protection Bureau to comment, and they declined to comment.

SHAPIRO: That's LA Times columnist David Lazarus. His latest column is "Buried Deep Within The GOP Bill: A Free Pass For Payday And Car-Title Lenders." Thanks a lot.

LAZARUS: My pleasure.

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