How High-Cost Lenders Line the Pockets of Powerful Washington Politicians
This report examines the large sums of money that quick-fix consumer lenders spent on lobbying and campaign contributions in the 2013-14 election cycle. It includes data on payday, auto title and installment lenders along with other entities that play an integral role in their operations.
These lenders and their trade associations reported over $15 million of political spending in the 2013-14 election cycle. Much of that money was spent by trade associations that represent the industry in Washington. For example, the Online Lenders Alliance (OLA) spent $2.1 million in this election cycle, and the Community Financial Services Association (CFSA), the national trade association for companies that offer small dollar, short-term loans or payday advances, spent $1.7 million.
Major spenders also include the clients of these trade associations – the large national chains that dominate the high-cost consumer lending world: ACE Cash Express, Advance America, and Cash America International, a pawn broking business that earned over half its 2013 revenue from payday lending. Cash America alone spent $1.9 million on lobbying and campaign contributions during this period.
In addition to the lenders and their trade associations, this report tracks political spending by allied entities such as brokers with special ties to payday lenders, database miners, and the developers of software used to track, bill, and collect from borrowers.
Payday, auto title and installment lenders make loans to economically stressed borrowers. Their loans typically carry fees that work out to the equivalent of 300- 500% annual interest.1 These lenders typically make little or no effort to determine whether a borrower can truly afford to repay a loan, relying instead on collateral and direct access to the borrower’s bank account or car to ensure collection. This combination of features means that while such loans may be marketed as a way of dealing with a one-time financial emergency, they routinely lead borrowers into a cycle of long-term debt. Because of their extremely high fees, many people end up paying far more in loan charges than they originally borrowed; and because of strong-arm collection tactics, payments to these predatory lenders often take priority over rent, utilities and other necessities.
This debt-trap effect is in fact an essential element of the quick-fix lending industry. The Consumer Financial Protection Bureau (CFPB) has found that four out of five payday loans are rolled over or renewed within two weeks, with half becoming part of a sequence of more than ten loans.2 To put it another way, the entire business model of payday lending depends on getting people to borrow again and again and pay more and more in fees.
Lobbying expenditures and campaign contributions are part of what the industry uses to influence regulators and lawmakers (and regulators through lawmakers) as decisions are made both about the enforcement of existing rules and the development of new rules against abusive lending.
The 2013-14 election cycle was marked by a number of regulatory and legislative decisions and proposals of intense concern to these lenders. The Dodd-Frank financial reform law of 2010 created the Consumer Financial Protection Bureau (CFPB) with the mission of preventing tricks and traps in the consumer finance market. The Bureau has taken on unfair and deceptive practices in the high-cost loan industry through supervisory and enforcement actions, including, for example, a $10 million settlement with ACE Cash Express, which markets loans and related services both online and through retail storefronts in 36 states and the District of Columbia. Under the settlement, ACE was required to pay $5 million in penalties for an array of debt-collection tactics that included the use of harassment and false threats to pressure overdue borrowers into taking out still more loans they could not afford.3
In 2015, the Consumer Bureau is widely expected to announce a set of proposed consumer protection rules that could bring dramatic changes to the quick-fix lending market. The Bureau has already issued two research reports documenting the debt-trap effect of payday loans.4
As a result of these and other regulatory activities the Bureau has been under steady attack in Congress by those seeking to limit its effectiveness, and the payday, car title, and installment lenders have a particular interest in minimizing the strength and reach of these new rules.
Meanwhile, in a project known as “Operation Choke Point,” the Justice Department has begun to crack down on banks and payment processors that knowingly facilitate fraud, including the collection of illegal debts. The first (of three) enforcement action linked to Operation Choke Point involved Four Oaks Bank & Trust of North Carolina. Four Oaks and a Texas-based payments company had processed roughly $2.4 billion in transactions benefiting illegal payday lenders, money laundering of Internet gambling operations and, in one case, a thinly disguised online Ponzi scheme.5 Separately, the Office of Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have taken similar steps to clarify due diligence requirements for banks that may be processing fraudulent transactions.
Storefront and online payday lenders, as well as payment processors, have vigorously objected to this kind of enforcement, which threatens the industry’s ability to collect payments on loans that violate state or federal lending laws. In addition to protests aimed directly at the Justice Department and the bank regulators, the industry has gone to Congress in an effort to get sympathetic legislators to take up its cause in oversight hearings and public statements, and even to introduce bills designed to end Operation Choke Point and other efforts to prevent payments fraud.
The quick-fix loan industry uses political contributions to seek policy goals that go sharply against the weight of public opinion. Broadly speaking, two-thirds of voters – including majorities of Democrats, Independents and Republicans – believe there should be more, not less, government oversight of financial companies. More specifically, 72% of Americans have an unfavorable impression of payday lenders and 56% regard payday lenders as predatory.6 Roughly 80% of voters say that payday and other small-dollar lenders should be required to verify a customer’s ability to repay before a loan can be issued7 – a rule that would undermine the business model of much of the quick-fix high-cost loan industry.
This report draws on the work of the Center for Responsive Politics (CRP), which compiles and analyzes contributions to members of Congress made by trade associations, company PACs, and company employees. The raw data for the CRP’s work comes from reports of campaign contributions filed with the Federal Elections Commission (FEC), and from reports of lobbying expenditures filed with the Senate Office of Public Records. The lobbying expenditures and campaign contribution data presented here are for all of 2013 and 2014.
This data is incomplete in several ways. First, the lobbying figures reflect only the work of people who are officially registered as lobbyists. They do not include the (often quite significant) additional money spent on contributory research and support staff who are not lobbyists, nor on communications, advertising, litigation and other activities that may be intended, at least in part, to influence regulators or legislators.8 Also excluded is the so-called “dark money” contributed to nonprofits that engage in political advocacy in their own right but do not have to report their donors. The total amount of unreported dark-money spending is widely believed to be at least as great as reported spending.9
1 “How State Rate Limits Affect Payday Loan Prices,” The Pew Charitable Trusts, April 2014. http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs/content-level_pages/fact_sheets/ StateRateLimitsFactSheetpdf.pdf
2 “CFPB Data Point: Payday Lending,” Consumer Financial Protection Bureau (CFPB) Office of Research, March 2014, p. 4. http://files.consumerfinance.gov/f/201403_cfpb_report_paydaylending.pdf
3 “CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt,” Consumer Financial Protection Bureau (CFPB), July 10, 2014. http://www. consumerfinance.gov/newsroom/cfpb-takes-action-against-ace-cash-express-for-pushing-paydayborrowers- into-cycle-of-debt/
4 “Payday Loans and Deposit Advance Products,” Consumer Financial Protection Bureau, April 24, 2013. http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf
“CFPB Data Point: Payday Lending,” Consumer Financial Protection Bureau Office of Research, March 2014. http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf
5 “United States Attorney Announces Settlement With Bank Accused Of Consumer Fraud,” US Department of Justice press release, April 29, 2014. http://www.justice.gov/usao/nce/ press/2014/2014-apr-29.html
“Judge approves Four Oaks Bank’s $1.2 million settlement,” by David Ranii, News & Observer, April 28, 2014. http://www.newsobserver.com/news/business/article10324616.html
In recent months, the Department of Justice has settled cases with two more banks:
“CommerceWest Bank Admits Bank Secrecy Act Violation and Reaches $4.9 Million Settlement with Justice Department,” US Department of Justice press release, March 10, 2015. http://www. justice.gov/opa/pr/commercewest-bank-admits-bank-secrecy-act-violation-and-reaches-49- million-settlement-justice
“Justice Department Announces Settlement with California Bank [Plaza Bank] for Knowingly Facilitating Consumer Fraud,” US Department of Justice press release, March 12, 2015. http:// www.justice.gov/opa/pr/justice-department-announces-settlement-california-bank-knowinglyfacilitating- consumer-fraud
6 “Findings from a National Survey of 1,000 Likely 2014 Voters,” Lake Research Partners, October 2014. http://ourfinancialsecurity.org/blogs/wp-content/ourfinancialsecurity.org/ uploads/2014/03/Lake-Slides-in-PDF-Oct-2014.pdf
7 “Bipartisan Support for Financial Regulation and Enforcement,” poll of voters, Lake Research Partners and Chesapeake Beach Consulting, January 22, 2015. http://www.responsiblelending. org/media-center/press-releases/Memo-CRL-Bipartisan-f-012215.pdf
8 For example, see: “Where Have All the Lobbyists Gone? On paper, the influence-peddling business is drying up. But lobbying money is flooding into Washington, DC, like never before. What’s going on?” by Lee Fang, The Nation, February 19, 2014. http://www.thenation.com/article/178460/shadowlobbying- complex
“… While the official figure puts the annual spending on lobbying at $3.2 billion in 2013, Thurber estimates that the industry brings in more than $9 billion a year. …”
9 ”Secret Money Fueling a Flood of Political Ads,” by Nicholas Confessore, New York Times, Oct. 10, 2014. http://www.nytimes.com/2014/10/11/us/politics/ads-paid-for-by-secret-money-flood-the-midterm-elections.html