Progress Illinois

The last time a local congressperson tried to amend a bill creating a Consumer Financial Protection Agency (CFPA), the intent was to protect lenders against stricter regulations. Illinois' Luis Gutierrez is taking a different approach. According to Politico, Gutierrez may soon introduce a bill to help protect borrowers from some of the worst abuses of the payday loan industry. From an article today:

Illinois Rep. Luis Gutierrez, a longtime foe of the payday industry, is considering offering a payday-specific amendment to CFPA legislation when it reaches the House floor that would cap interest rates on payday loans at 48 percent — and also force lenders to provide a 90-day fee-free repayment plan if a borrower couldn’t meet the original terms.

“We think it’s important that we give the clearest, most specific guidelines and instructions to our new consumer protection agency as possible. And we think that if there is an actor in the nonbanking financial institutions arena ... it is the payday lenders. Some of the most egregious violations in the consumer section occur under their watch,” Gutierrez said.

We might quibble with calling Gutierrez a "longtime foe" of payday lenders. But regardless, this proposed amendment represents a dramatic -- and welcome -- shift for the congressman. Just last spring, Gutierrez came under criticism for introducing a lax payday loan reform bill that would have set a federal annual interest rate ceiling at 390 percent for a two-week loan, effectively legitimized the existing products on the market. When questioned why the cap was not lower, he said during a committee hearing that implementing 36 percent cap on all consumer credit transactions as proposed by Sen. Dick Durbin was "not possible" because of the industry's clout in Washington. In making that claim, he failed to acknowledge that his own campaign had benefited greatly from industry campaign contributions in the past. In turn, he was whacked by consumer groups, editorial boards, and even Stephen Colbert.

But pressure by constituents and consumer advocates seems to have pushed him in the right direction. In July, Gutierrez decided to turn away any future campaign donations from the payday loan industry. Then, at a hearing in Washington earlier this month, Gutierrez accused credit card companies of exploiting his legislative goodwill and introduced a bill that would speed up implementation of the new consumer protections by more than two months. Now, he seems serious about protecting low-income borrowers from products that can best be described as debt traps.  We'll be watching to see whether he moves from "considering" such an amendment to actually introducing it.

Image used under a Creative Commons license by Flickr user Steve Rhodes.