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Congress For Sale

By Melanie Sloan

Thousands tour the United States Capitol each week without noticing a “For Sale” sign.  Rest assured though, Congress can be bought.  Payday lenders are among those who have realized and taken advantage of this discovery.

About two years ago, my organization, Citizens for Responsibility and Ethics in Washington (CREW) revealed that payday lenders had begun making campaign contributions and hiring lobbyists to forestall legislation regulating the industry.  Revisiting the issue, we found payday lenders have ramped up their spending even further.

With great fanfare, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, intended to protect Americans from some of the worst abuses of the financial services industry.  The centerpiece of that legislation is the Consumer Financial Protection Bureau (CFPB), headed by bankruptcy expert and consumer advocate Elizabeth Warren. Because, as Ms. Warren explained, payday loans are “credit product[s] that can impose substantial costs on imperfectly informed and imperfectly rational borrowers,” she has indicated oversight of such loans will be a priority for the new agency.

Ms. Warren’s reservations about payday loans seem reasonable. The Center for Responsible Lending reports that each year 12 million Americans are caught up in a cycle of paying 400% interest on payday loans. The industry targets low-income working consumers who live paycheck-to-paycheck and have little to no savings. Most borrowers are unable to repay the whole loan, leaving them trapped paying renewal fees to maintain the loans.

The payday loan industry’s spending on lobbying has more than sextupled since 2005, and it doubled from the 110^th Congress to the 111^th Congress.  One lobbying firm, Timothy R. Rupli & Associates, Inc., run by a onetime aide to former Majority Leader Tom DeLay (R-TX), earned $1.9 million lobbying for a payday industry trade group during the 111th Congress alone.  Brownstein Hyatt Farber Schreck earned $680,000 representing ACE Cash Express, and Sellery Associates Inc. earned $635,000 lobbying for the Financial Service Centers of America.

The money was well spent. Thanks to the efforts of these lobbyists, proposed regulations, including interest rate caps and limits on the number of times a borrower could take out a payday loan, were kept out of the bill.