Last week, we applauded Rep. Luis Gutierrez’ work as chairman of the U.S. House Financial Institutions Subcommittee, specifically a hearing he held to beat back the right-wing myth that the Community Reinvestment Act caused the nation’s mortgage crisis by putting pressure on banks to extend risky mortgages to low-income borrowers. But consumer advocates aren’t as pleased with another of his priorities atop the subcommittee: introducing a payday loan bill that is anything but helpful to borrowers.

In late February, Gutierrez and four co-sponsors introduced the Payday Loan Reform Act of 2009, a bill he says “outlines solid consumer protections for 23 states that have weak or even nonexistent consumer protections from abusive lenders.”

Jean Ann Fox at the Consumer Federation of America disagrees. Calling it “a bad piece of legislation and it will be harmful to consumers in the small loan market,” Fox takes umbrage with the Section 2 d, which makes it unlawful for a payday lender “to require a consumer to pay interest and fees that, combined, total more than 15 cents for every dollar loaned in connection with a payday loan.” Typically, state laws are quoted as dollars per hundred, so the language is a bit unorthodox. But when multiplied out, $15 worth of interest for an $100 advance equals about 390 percent annual interest for a two-week loan, which is the typical fee structure in the industry. In other words, Gutierrez’ legislation ostensibly legitimizes the existing product. “This is business as usual for payday lending,” Fox adds.

Industry groups publicly oppose the measure, in part because the bill does not preempt any lower rate caps implemented at the state level. But passing a federal law institutionalizing the practice sends the wrong message, especially because state officials across the country are consistently attempting to pass more stringent reforms. “The industry, which is really on its heels these days,” says Fox, “would think that federal legislation that recognizes their product as legitimate would give them a fresh lease on life.”

Strangely enough, Gutierrez introduced a bill by the same name two years ago that was much more amenable to consumer advocates. (Fox herself penned a letter (PDF) in support of the measure.) Asked about the change of heart, Fox says Gutierrez’ staff did not ask any her organization for input this year, even though they were involved in the process before. A Gutierrez spokesperson emailed that he and his staff have always worked with consumer groups before and they've discussed the bill's details with advocates over the past several weeks.

A better alternative, according to 100 advocacy groups (PDF), is Sen. Dick Durbin’s payday loan reform bill, which would impose a federal cap of 36 percent on all consumer credit transactions. This would also fulfill a campaign promise by President Obama, who agreed to extend a 36 percent interest cap to all Americans, not just military families.

The House bill, on the other, just doesn’t seem to go far enough. “You’d think we’d have learned a lesson,” says Fox, “from extending mortgage credit to people without determining ability to repay.”