Senator Collins’ Committee Examines Predatory “Payday” Loans Issued by Internet Lenders
Maine Bureau of Consumer Credit Protection Official Testifies Before the Senate Aging Committee
WASHINGTON, DC—Even though Maine laws prohibit the type of abusive, very high-interest, short-term lending practices often associated with “payday” loans, this type of unscrupulous lending still occurs in Maine through Internet-based lending companies, driving many consumers even further into debt. The Special Committee on Aging, of which Senator Collins is the Ranking Member, examined issues related to payday loans and deposit advance products during a hearing entitled, “Payday Loans: Short-Term Solution or Long Term Problem?”
Eric Wright, a Staff Attorney for the Maine Bureau of Consumer Credit Protection testified about the troubling prevalence of on-line lending that Maine consumers have faced. According to Wright, his department receives daily calls from Mainers victimized by these on line lenders.
Senator Collins, who previously served as Maine Commissioner of Professional and Financial Regulation and oversaw the Maine Bureau of Consumer Credit Protection in the McKernan Administration said, “We are fortunate that Maine’s laws prevent abusive ‘payday’ loans, which can commit borrowers to paying nearly 400 percent annual percentage rates, and even higher, on short-term loans. Under these terms, borrowers, who are generally already struggling financially, are driven more deeply into debt and in many cases, must take out new loans to repay old ones. Borrowers also too often become subjected to threats and harassment by these lenders.”
Senator Collins noted that there is a need in the marketplace for short-term loans, and that there are many reputable lenders that offer these loans. The Maine Bureau of Consumer Protection, for example, licenses seven payday lenders that fully comply with state law. Unfortunately, however, many Maine consumers have fallen victim to unscrupulous Internet-based payday lenders who do not want to be licensed by the state of Maine because they do not want to adhere to the state’s strict interest rate and fee limitations. A major focus of the Aging Committee hearing was the activities of these lenders, who offer illegal payday loans over the Internet.
In his testimony Wright said that in 2012 alone, the Bureau handled 86 formal complaints against payday lenders in addition to many more calls from consumers who had questions about these loans. He cited the case of a Maine consumer who initially borrowed $200, and was forced to pay back $1400 on that loan. In another example, a Maine consumer borrowed $300, repaid $360, and was told he still owed another $593.84.
The collection methods of some of these lenders are also cause for concern. On-line lenders, or third parties, are reported to have told borrowers who are late in repayment that they will be arrested or jailed, that their wages will be garnished, or that their privileges to drive will be revoked, none of which could happen under Maine law.
Others who testified at the hearing were: David Silberman, Associate Director, Research, Markets, and Regulations, Consumer Financial Protection Bureau; and Mark Pearce, Director Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation.
“It is my hope that this hearing will help alert consumers to the risks associated with payday lending, as well as the dangers associated with borrowing from unscrupulous on-line lenders who have figured out how to circumvent Maine law,” added Senator Collins