The payday lending industry is infamous for providing 12 million Americans each year with short-term loans that end up costing an average of more than 138 percent in interest and fees. But as the U.S. Department of Justices moves to crack down on those lenders who have illegally taken billions from the checking accounts of consumers, two powerful U.S. Congressmen are going to bat for the industry, a letter obtained by ThinkProgress reveals.
Each year, millions incur long-term debt by taking out a short-term loan that’s intended to cover borrowers’ expenses until they receive their next paychecks. Most take out nine repeat loans per year with an interest rate as high as 400 percent. Forty-four percent of borrowers ultimately default, even after paying back their loans several times over, and thus are pushed ever closer to poverty. Critics have called the practice “legalized loan sharking” and describe the industry as “bottom feeders.” In recent years, major banks have also joined in the practice.
In recent weeks, the U.S. Department of Justice began to take aim at the big banks that illegally help payday lenders rip off consumers. “Operation Choke Point” is a massive investigation into whether banks help payday lenders illegally siphon billions of dollars from consumers’ checking accounts in exchange for a fee. Some banks, which offered loans of their own, recently announced they would get out of the payday lending business entirely to avoid a separate regulatory crackdown.
But rather than cheer this consumer-friendly move, two powerful Congressmen are moving to stop it. House Oversight Committee Chairman Darrell Issa (R-CA) and Subcommittee on Economic Growth, Job Creation and Regulatory Affairs Chairman Jim Jordan (R-OH) sent a letter to Attorney General Eric Holder on January 8, accusing the Justice Department of “using its civil investigative power” to “inappropriately target two lawful financial services: third-party payment processing and online lending.”
They wrote:
The Department has consistently stated that its goal is to combat mass-market consumer fraud. However there is ample evidence that the true target of Operation Choke Point is the online lending industry, not actual frauders. Initial press reports of the Department’s investigations support such an understanding.
As their “strongest evidence,” Issa and Jordan cite a press release by one bank that cited inquires that were “part of an industry-wide DOJ investigation” of electronic financial transaction services “provided to payday lenders.” They demand any documents and communications, dating back to 2011, relating to the operation.
Since he became chairman of the House Oversight Committee after the 2010 elections, Issa has consistently used the committee to defend the interests of corporations. In December 2010, he sent a letter to scores of companies and trade associations asking for their “assistance in identifying existing and proposed regulations that have negatively impacted job growth in your members’ industry” and “suggestions on reforming identified regulations and the rulemaking process.” And weeks before that, he promised that if he became chairman, ““I won’t use it to have corporate America live in fear that we’re going to subpoena everything.”
Update:
This post has been updated to clarify that the banks that recently withdrew from the payday lending market did so to avoid a separate regulatory crackdown.