Democrats are rushing to embrace the Obama administration’s new rules designed to crack down on short-term “payday” lenders, including even some erstwhile high-profile opponents, as the party’s anti-Wall Street left wing flexes its muscle.
The Consumer Financial Protection Bureau has proposed the rules, which would require short-term lenders to meet standards similar to those for banks, drawing quick praise from the party’s presidential contenders.
More striking, though, were the statements of support from Reps. Debbie Wasserman Schultz and Patrick Murphy, two Florida Democrats who previously opposed such a move and sponsored a bill designed to block the payday rules from taking effect.
“As a strong supporter and partner of the Consumer Financial Protection Bureau in Congress, I stand with the CFPB in its efforts to protect Americans from predatory lending,” said Ms. Wasserman Schultz, who is also chairwoman of the Democratic National Committee. “From the outset of this process, I have said that I trust the CFPB to do what’s right for consumers, and these proposed rules are an important step towards that critical goal.”
She and Mr. Murphy are locked in primary races — Ms. Wasserman Schultz for her House seat and Mr. Murphy for the state’s open Senate seat — and liberal groups said it was no surprise that they flipped, given the increasing level of controversy over payday lending.
“This is a wake-up call for progressives in Congress and every state legislature around the country. Getting in bed with the payday lending industry isn’t only bad policy, it’s bad politics,” said Karl Frisch, executive director for Allied Progress, which had been running television and digital ads blasting Ms. Wasserman Schultz and Mr. Murphy for their support of Florida’s payday lending laws.
Payday lenders offer short-term loans, typically due within several weeks, while charging high interest rates. But the CFPB, an outgrowth of the 2008 financial crisis, says seven in 10 borrowers can’t repay on time and borrow more, sparking a cycle of mounting fees and interest that amounts to a “long-term debt trap.”
The rules proposed Thursday require lenders to make sure customers can repay what they borrow. Also, lenders cannot use postdated checks to repeatedly try to debit money from consumers’ bank accounts because that can trigger penalties for insufficient funds.
Congress can try to stop the rules, but it is unclear whether Republicans will take that step. They are generally critical of the proposal.
“Nothing has been scheduled at this time, but it’s very possible the committee will take some action,” said Jeff Emerson, spokesman for the House Financial Services Committee.
Until Friday, the Republican-led committee had Democratic allies in Ms. Wasserman Schultz and Mr. Murphy. Both sponsored the Consumer Protection and Choice Act introduced by Rep. Dennis A. Ross, Florida Republican, that would stave off CFPB payday rules for 24 months and shield states like Florida, which forged its own rules to license and regulate payday lending, from having to accept federal regulations.
They took heat for weeks from supporters of Sen. Bernard Sanders, who are fighting to make the Democratic Party less responsive to the desires of banking and finance companies.
Payday lender supporters’ position became less tenable Thursday. Democratic presidential front-runner Hillary Clinton praised the bureau for forging an “important proposal,” and Sen. Elizabeth Warren, a hard-charging progressive, hinted that any Democrat who bucked the rules was kowtowing to powerful lobbyists.
“Congress wasn’t elected to help predatory lenders. If anyone tries to block or delay the [hashtag] CFPB payday rules, it’s time to fight back hard,” Ms. Warren, Massachusetts Democrat, said on Twitter.
Ms. Wasserman Schultz’s primary opponent, Tim Canova, said Friday in a Medium.com post that the congresswoman was “putting up the white flag” over federal payday rules in direct response to pressure from his campaign.
Mr. Murphy told the Tampa Bay Times that he, too, supports the CFPB’s proposal, though neither his office nor a spokesman for Ms. Wasserman Schultz responded to inquiries from The Washington Times on whether they would remove their names from Mr. Ross’ bill.
The public has until Sept. 14 to comment on the CFPB proposal, which also cracks down on auto title loan companies and would likely take effect in 2018.
Aaron Klein, a fellow in economic studies at the Brookings Institution, said the rules “got it mostly right” and offered enough time to help lenders adjust. He also said he doesn’t expect lawmakers to scuttle the bureau’s momentum.
“Congress can often complain about financial regulation,” Mr. Klein said. “It’s very rare, once a rule is proposed, that it’s pulled down by Congress.”
Even so, conservatives such as Sen. Ted Cruz, Texas Republican, vowed to look beyond the rules and dismantle the CFPB itself.
“Don’t let its name fool you. The Consumer Financial Protection Bureau does little to protect consumers,” he said. “This rogue agency continues to grow in power without any accountability to Congress or to the American people. Congress must eliminate it.”
• Tom Howell Jr. can be reached at thowell@washingtontimes.com.
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