Senate rejects payday loan amendment in financial reform bill

a session of the Senate in progress

Payday lenders and borrowers escaped federal restrictions as the Senate rejected a payday loan amendment to the financial reform bill. Wikimedia Commons photo.

Consumer credit sources pulled off a narrow escape Wednesday as the Senate rejected an amendment to the financial reform package that would have tightened regulation on payday loan companies. The proposed legislation sought to exert federal restrictions on an industry regulated at the state level. Provisions in the payday loan amendment in the financial reform bill would have limited consumer access to same day cash advances and prohibited cash companies from offering additional products and services.

Financial reform bill debate

The Senate financial reform package includes a new consumer protection agency with broadly defined authority that has aroused concern across the financial industry, from giant Wall Street banks to car dealers who help customers with loa forms. The Wall Street Journal reports that the payday loan amendment in the financial reform bill, introduced last month by Democratic senator Kay Hagan of North Carolina, would have prohibited payday loan companies from selling or providing other services or products in the same location that they give payday loans. It would have also limited consumers to six paycheck loans a year. The Federal Reserve Board would take control of the cash industry.

Payday loans offer timely credit

Payday lenders offer advances on paychecks for people who need short-term help for such things as unexpected car repair, emergency room charges or the opportunity to take advantage of a special offer. Payment is typically due within a few days of the borrower’s next paycheck. The Chicago Tribune reports that cheaper methods for covering expenses when cash is short aren’t as convenient or readily available — including credit cards — and are a lot tougher to get now, especially after the financial meltdown.

Payday lenders bridging the gap

Payday lenders are doing well these days because they’re satisfying a consumer need while conventional banks leave many consumers high and dry with no other alternatives. The Tribune article mentions that a recent government report found that 9 million U.S. households don’t have a checking or savings account, and millions more don’t use them regularly. Even though payday borrowers and lenders have escaped federal restrictions for now, the industry is regulated by states with a hodgepodge of rules and outright bans.

Payday loan amendment dismissed

Senate debate on the financial reform package has gone on for weeks. When Senator Hagan tried to put up her amendment for debate Tuesday afternoon she needed unanimous consent for a discussion. She failed, which leaves the payday loan amendment out of the financial reform bill for now. The stock market responded to the Senate’s rejection Wednesday. Cash America International Inc. was up 4.1 percent to $36.82, Ezcorp Inc. rose 3.4 percent to $18.76, Advance American Cash Advance Centers Inc. climbed 6.8 percent to $4.72 and First Cash Financial Services Inc.  was up 2.3 percent to $21.86.