Rep. Gwen Moore (D-Wis.) has a payday lending problem.
On Tuesday, HuffPost published an article highlighting an obscure piece of legislation moving through Congress that would help payday lenders and other shady operators skirt predatory lending laws passed by state governments. It’s the sort of bill Republicans sponsor all the time. Every now and then, Democrats quietly join them, hoping that a minor bill circling through the House Financial Services Committee will be overlooked in the grand legislative debates over taxes, health care and foreign policy.
The bill was introduced by Moore and archconservative Rep. Patrick McHenry (R-N.C.), and it exploits a weakness in national banking law to provide convoluted but very real aid to predatory lenders.
Thanks to a 1978 Supreme Court decision, national banks don’t have to pay attention to usury laws, which regulate the interest rates they can charge on loans, outside their home state. A national bank headquartered in a state with weak usury laws ― say, Delaware ― doesn’t have to abide by the more stringent standards in Colorado when it makes a loan to a family in Denver.
Consumer advocates don’t like this situation. But in 2015, they got some help from a federal judge, who ruled that debt collectors and other opportunists who purchase debts from national banks couldn’t enjoy the same freedom from state rules that national banks do.
That was a big deal, because banks don’t generally want risky, high-interest loans on their books. And so a lot of predatory loans will only be issued if banks think they can dump them off on someone else ― say, a payday lender. The case ― Madden v. Midland ― applied directly to only three states, but it sent a signal to lenders all over the country that a certain type of scheme wasn’t going to fly in court any longer. A payday lender couldn’t just go into business with a bank to take advantage of its regulatory charter to get around state usury laws. A bank couldn’t issue a loan at a high interest rate, say 300 percent, and then immediately turn around and sell that loan to a payday specialist, pocketing a handsome commission for itself.
This gave state predatory lending laws new bite. And Moore ― along with Rep. Gregory Meeks (D-N.Y.) and Sens. Mark Warner (D-Va.) and Gary Peters (D-Mich.) ― is working to reverse that decision nationwide, enshrining partnerships between banks and payday lenders in federal law and undermining state rules.
“The bill blesses rent-a-bank arrangements where banks launder debt for usury purposes,” notes Georgetown University Law professor Adam Levitin.
It’s possible federal regulators could step in to block some of this behavior, should Moore’s bill become law. But consumer protection hasn’t exactly been a priority for the administration of Donald Trump.
On Tuesday night, Moore took to Twitter to attack “an article” that she said “misrepresents” her bill. Moore insisted she was actually trying to prevent people from turning to payday lenders and trying to help families get bank loans on terms that could never be changed.
“We don’t want them to turn to payday lenders where they’ll have to agree to interest rates they can’t possibly afford,” Moore wrote. “We don’t [want] them thrown into a cycle of poverty that’s impossible to escape. We want to make sure low-income people have a sensible place to turn for a fair loan.”
“That’s where a bank loan becomes a lifesaver,” she added, saying she isn’t interfering with the Consumer Financial Protection Bureau’s payday lending regulations.
Generally speaking, anyone who invokes the moral integrity of national commercial banks to burnish their reputation as a defender of the poor is not arguing from a position of strength. Technically, what Moore tweeted is accurate. She’s undermining state laws, not CFPB rules. People would, under her bill, be receiving a loan from a bank. But the significance of that fact is the exact opposite of what she suggested on Twitter.
There is a reason the NAACP, the Southern Poverty Law Center, the National Consumer Law Center, the Consumer Federation of America and dozens of churches, women’s groups and anti-poverty organizations from around the country have denounced the bill. In September, those groups wrote a joint letter to Congress warning that Moore’s bill “wipes away the strongest available tool against predatory lending practices” and will “open the floodgates to a wide range of predatory actors to make loans at 300% annual interest or higher.”
But you don’t have to take the NAACP’s word for it. Just take a look at the companies who are lobbying in favor of Moore’s bill. There aren’t many, as it’s a complicated and obscure issue. But one of them, according to a federal lobbying disclosure form, is a firm called CNU Online Holdings LLC. Most customers of CNU Online Holdings don’t even realize they use it ― they’re more familiar with CNU’s parent company, payday lending giant Enova Financial, or its flagship brand CashNetUSA.
Enova and CashNet are notorious payday lenders. A 2016 U.S. Public Interest Research Group analysis of complaints submitted to the Consumer Financial Protection Bureau found that Enova had more complaints filed against it than any other payday lender in the country. The company has developed a huge business in high-interest installment loans sold over the internet and is explicitly listed in the letter from the NAACP and consumer advocates as a lender that exploits a “rent-a-bank partnership” in a “scheme” to get around predatory lending laws. Enova spokeswoman Caroline Vasquez confirmed that her company has “a relationship” with a bank, and told HuffPost, “those loans are all issued at sub-36 percent rates.”
Moore’s office insists the congresswoman is worried about credit markets more generally ― that ordinary, healthy loans won’t be made if the Madden decision isn’t repealed. But the verdict is now more than two years old, and credit markets aren’t falling apart.
And if Moore’s bill passes, Enova won’t have to worry about state interest rate limits standing in the way of charging 300 percent or more for their products.