In fact, the bill would carve lenders peddling harmful financial products online, like payday and car title loans, out of hard-fought state and federal consumer protections. Disappointingly, Rep. Bobby Rush (D-IL) is a co-sponsor of this bill, which would strip wealth from consumers who can least afford it.

H.R. 1566 creates a federal charter for nondepository online lenders under the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB). At the same time, the bill significantly weakens the OCC’s and the CFPB’s strong powers to regulate payday and other small dollar lenders. Both agencies have recently reinforced the need for consumer protections for small dollar loans and H.R. 1566 would tie their hands for future efforts to ensure that consumers receive safe and sustainable credit. Limitations on regulatory power in the bill include a prohibition on issuing any price or interest rate caps on online small dollar loans and on determining whether a credit product is unfair, abusive, or inappropriate based on its cost to consumers.

H.R. 1566 would also exempt online lenders from federal consumer protections, such as the provision of the Truth in Lending Act that requires lenders to display the cost of credit as an annual percentage rate. Eliminating APR disclosure would severely limit borrowers’ ability to understand the terms of their credit and compare among several options.

A federal online payday charter would have a devastating impact by allowing online payday lenders to circumvent state consumer protection laws that advocates fought for decades to put in place. In Illinois, we have laws that require lenders to be licensed, limit the cost of credit, end the long-term cycle of debt, ensure that borrowers can repay the loans, and require lenders to report data on their loan terms so that regulators can enforce the laws. Illinois also recognized the unique risks posed by difficult-to-regulate online payday lenders by prohibiting any unlicensed payday lenders from collecting outstanding debt. Under H.R. 1566, online lenders would not have to abide by any state laws that license or regulate payday lenders. Illinois consumers decided that they want a credit market where everyone must play by the rules, not H.R. 1566’s weakly regulated Wild West that would lead to costly debt traps.

H.R. 1566 requires the OCC and the CFPB to encourage partnerships between internet lenders and other financial institutions, like banks and credit unions. Bank regulators have long determined that relationships between banks and high-cost lenders are a threat to the  safety and soundness of banks and the financial well-being of consumers. The OCC made this clear when it effectively ended bank-payday partnerships in 2003 by requiring several banks to exit the business of financing payday lenders. Requiring regulators to promote a practice that poses risks to financial institutions and consumers alike rolls back a decade of consumer protection progress.

Woodstock Institute is urging Rep. Bobby Rush to remove his name as a cosponsor of the bill. We encourage you to call his office, particularly if you live or work in his district, and let him know:

1. Illinoisans fought for more than a decade to put consumer protections for payday loans into place.
2. H.R. 1566 would roll back the progress made to protect consumers at the state and national levels and create a special protected status for online lenders that offer harmful products.
3. Will Rep. Rush remove his co-sponsorship from H.R. 1566?

Please drop me a line and let us know how your call went at kbuitrago@woodstockinst.org or 312-368-0310.