House chairwoman backs interest rate cap on payday loans

The chairwoman of the House Financial Services Committee said she plans to advance a bipartisan bill to impose a strict limit on interest rates when Congress reconvenes next year.

Rep. Maxine Waters (D-Calif.) said in an interview with The Hill that her committee will take up the Veterans and Consumers Fair Credit Act, which would impose a national cap on interest rates at 36 percent.

Under federal law, lenders are banned from offering loans to active-duty military members with interest rates higher than 36 percent. But the bill, spearheaded by 16 Democrats and one Republican, would expand that protection to all Americans.

Waters and dozens of Democrats have been fiercely critical of the “payday” loan industry, which offers loans at high interest rates and repayment deadlines as short as two weeks. The Consumer Financial Protection Bureau (CFPB) issued a rule in 2017 to impose strict limits on payday loans, but the regulation was gutted under Trump-appointed officials in 2019.

It’s unlikely that a hard limit on payday loan interest rates would clear a Republican-controlled Senate. GOP lawmakers have been critical of Democratic efforts to curb payday lending through regulation and insist short-term, high-interest loans are a crucial financial lifeline for low-income Americans.

But Waters, her Democratic colleagues and consumer advocates argue that payday loans are often used to trap vulnerable customers in cyclical debt that could decimate their financial health and credit.

“We’re going to put a cap on them the same way we do for our service members,” Waters said.

Waters has battled with the CFPB throughout her tenure atop the Financial Services panel, and touted those fights in a report reviewing her first year as chairwoman.

Under former Director Richard Cordray, appointed by former President Obama, the CFPB issued sweeping regulations on banks and lenders and pursued aggressive enforcement actions against companies that were accused of defrauding or abusing their customers. But Cordray’s departure in 2017 opened the door for Trump appointees to reverse or temper much of the CFPB’s intense financial sector oversight.

The House in May passed a bill from Waters to undo the work of former acting Director Mick Mulvaney and current Director Kathy Kraninger, but the bill is likely to die in the GOP-held Senate. 

Still, Waters said Thursday that Democrats on the Financial Services panel will fight on behalf of the bureau in a Supreme Court case challenging its constitutionality. The high court in March will hear a case questioning whether the CFPB’s structure infringes on the president’s executive authority.

The CFPB is led by a sole director appointed by the president, confirmed by the Senate, and only fireable “for cause,” which is generally considered to be misconduct or severe incompetence. Critics of the CFPB argue that the director’s power and independence impedes the president’s power over the executive branch.

Republicans on the Financial Services Committee argued in a brief submitted this week that the Supreme Court should strike down the bureau’s structure and ask Congress to fix it. Waters said Thursday that she and committee Democrats will advocate in defense of the CFPB’s structure, even as Kraninger and Trump ask the court to limit its power.

“Consumers had nobody looking out for them until we created the Consumer Financial Protection Bureau,” Waters said. “We’re going to stand up and we’re going to fight for it.”