Payday lenders (and other short-term lenders) along with their trade associations have spent more than $13 million on lobbying and campaign donations since 2013, according to a new report put out by the Americans for Financial Reform (AFR).
The report is particularly troubling because it comes at a time when the government is finally beginning to crack down on “quick-fix” lenders, who are known for trapping vulnerable cash-strapped borrowers in cycles of debt by charging obscenely high fees in exchange for an immediate payout. The Consumer Financial Protection Bureau is expected to announce a set of rules next year that could bring dramatic changes to the payday lending market. Additionally, the Department of Justice has been zeroing in on banks and payment processors that knowingly facilitate fraud. The only enforcement action brought by the Justice Department in this operation (known as “Operation Choke Point”) so far has been in North Carolina. The Four Oaks Bank & Trust of North Carolina in collaboration with a Texas-based payments company was found to have processed around $2.4 billion in illegal transactions including those benefiting payday lenders.
Lobbying and campaign contributions from short-term lenders and their associates has prompted some lawmakers to push for legislation that would weaken the Consumer Financial Protection Bureau’s efforts and convinced others to question the Department of Justice about the validity of Operation Choke Point.
The top fifty politicians to receive these campaign contributions are listed in the AFR report. Two North Carolina politicians rank in the top fifteen of this list—Patrick McHenry, a Republican Congressman from the 10th district, and none other than our newly elected U.S. Senator, Tom Tillis.
While it’s hard to understand why any of our politicians would want to support a system that traps low-income borrowers in a vicious cycle of debt, it’s not difficult to see why short-term lenders want to stay in business. Currently, there are more payday lenders than McDonald’s in the United States (according to a recent news article). Now, consider that each borrower that visits one of these short-term lenders is paying fees that are the equivalent of between a 300 and 500 percent interest rate. Given the amount of money these companies are making, it is no surprise that they are willing to spend $13 million, if not more, to curry favor with lawmakers in the hopes of continuing with business as usual for as long as possible.