Report: Cheaper By The Dozen
How Twelve Members of Congress Were Showered with Campaign Cash by Payday Lenders Just Before and Soon After Taking Official Actions To Benefit The Industry
Billed as a “quick cash” solution for life’s unexpected financial emergencies, payday loans are peddled as financial snake oil to 12 million1 hardworking men and women each year. For too many, a cycle of seemingly inescapable debt follows. They have fallen victim to an industry that has used harassment, intimidation, and threats to keep that cycle spinning and bring in more than $46 billion2 annually.
When the Consumer Financial Protection Bureau (CFPB) was created3 in 2010 as part of the Wall Street Reform and Consumer Protection Act, it was charged with overseeing the payday lending industry among other responsibilities. Just a few years later, the CFPB released4 startling research detailing the damaging effects payday lending has on the financial well-being of consumers. It found:
- Only 15% of payday loan borrowers are able to repay their loans on time. The remaining 85% either default or take out new loans to cover old loans.
- More than 80% of payday loan borrowers rolled over (renewed) their loans into another loan within two weeks.
- More than one in five new payday loans end up costing the borrower more in fees than the total amount actually borrowed.
- Half of all payday loan borrowers take out at least ten loans in a row.5
The debt cycle illustrated by the CFPB’s research is not surprising. It is purposeful. It is by design. That’s how payday lenders make their money. As Daniel Feehan, the president and CEO of payday lender Cash America admitted at a 2007 conference, “[t]he theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.”6
In fact, an internal company training manual for payday lending giant ACE Cash Express depicted the cycle of a payday loan dubbing it, “The Loan Process.”7 Using a circular graphic that resembled an image commonly associated with recycling, the manual showed a consumer taking out a loan with ACE, spending all of the money, not having the ability to repay the loan, and then either taking out another loan with ACE or having their account sent to collections and returning to the beginning of the cycle by taking out a new payday loan from ACE to get their account out of collections.8
For most payday loan borrowers, this isn’t about a one-time loan to help cover an unforeseen financial emergency. Research from The PEW Charitable Trusts found most payday loans (nearly 70%) are used to cover recurring everyday expenses like a utility bill or food, while only 16% of loans are used to cover unexpected expenses.9
That’s exactly what payday lenders are counting on – customers who are already having trouble meeting their day-to-day living expenses who then take out a payday loan only to find it nearly impossible to pay off on time without taking out a new payday loan, and thus kicking off or extending the cycle of debt.
It is no wonder that the same PEW research found Americans favor more regulation of the payday lending industry by a margin of 3-to-1.10 That, along with the impact these financial products have on consumers may explain why the CFPB stepped forward earlier this year with a proposed framework for regulating payday loans.11
In addition to the broad support for reform found in PEW’s research, a recent bipartisan poll conducted on behalf of the Center for Responsible Lending found that a mere 11% of Americans had a favorable opinion of payday lenders.12 In the face of such dismal polling numbers one would not expect to see so many Members of Congress going to bat for such an unsavory and wildly unpopular industry.
But payday lenders have been preparing for this regulatory fight since the CFPB’s inception. The industry wields tremendous power not only over those it is able to ensnare with its risky financial products, but also over the levers of power in Washington. According to a recent analysis conducted by Americans for Financial Reform, payday and other installment lenders spent $15 million during the 2013-14 election cycle on lobbying and campaign contributions to Members of Congress and their political party committees.13
What are these payday lenders hoping to accomplish by spending so lavishly to lobby Congress and shower these powerful legislators with so much campaign cash?
This report details how a dozen members of the U.S. House of Representatives from both parties received significant campaign contributions from payday lending industry executives and political action committees (PACs) either just before or soon after taking official actions to benefit the industry. Taken as a whole, the timing of these contributions raises a serious question of whether they were made as a quid pro quo for official action. It is our hope that the serious questions raised by illuminating the suspicious, even crass timing of industry contributions and official actions taken by Members of Congress, will lead to further investigation and discussion of these important issues.
- On March 16, 2011, Rep. Patrick McHenry of North Carolina signed on to co-sponsor HR 1121 – legislation that experts said would “hobble the CFPB” and push the Bureau into “gridlock and inaction.” Just five days later, his Federal Election Commission (FEC) filings show he received $17,900 in campaign contributions from payday lending executives and just nine days after that, he received another $15,000 in contributions from industry PACs. [Levitin Testimony, House Financial Services, 4/6/11; Consumerfed.org, Letter, 5/3/11; Congress.gov, HR 1121; McHenry FEC Filing]
- On March 26, 2015, Rep. Pete Sessions of Texas signed on to co-sponsor HR 1266 – a new version of 2011’s HR 1121, which experts said would hobble the CFPB. The very next day he received a $2,700 campaign contribution from a payday lending industry PAC. [Congress.gov, HR 1121; Congress.gov, HR 1266; Sessions FEC Filing]
- On July 18, 2012, Rep. Blaine Luetkemeyer of Missouri introduced HR 6139 – legislation that experts said would undermine oversight of payday lenders by allowing them to bypass the regulatory authority of the CFPB and stronger state laws. The day before, Luetkemeyer refunded a $2,500 campaign contribution to the PAC of the payday lending industry’s special interest trade group – Community Financial Services Association of America (CFSA). Exactly two months later he received a contribution from the CFSA for double the original amount. [Congress.gov, HR 6139; Luetkemeyer FEC Filing]
- Rep. Stephen Fincher of Tennessee received $5,000 in campaign contributions from payday lending industry executives just days before and a $2,500 campaign contribution from another industry executive soon after signing on to co-sponsor Luetkemeyer’s HR 6139. On April 15, 2013, Rep. Gregory Meeks of New York signed on to co-sponsor HR 1566 – legislation with the same title and purpose as HR 6139. Just four days later, he received a $5,000 campaign contributions from a payday lending industry PAC. [Congress.gov, HR 6139; Fincher FEC Filing; Meeks FEC Filing]
- On June 5, 2014, the CFSA filed a lawsuit against the FDIC over Operation Choke Point, a Department of Justice (DOJ) effort that targets unscrupulous lending practices. Over the next week, payday lending industry executives and PACs contributed heavily to the campaign of Rep. Luetkemeyer who then filed HR 4986 – legislation that would end Operation Choke Point. Rep. Sessions signed on to co-sponsor HR 4986 the day after receiving a $5,000 campaign contribution from an industry PAC. [CFSA v. FDIC, Complaint Filed, 6/5/14; Luetkemeyer Press Release, 6/26/14; Congress.gov, HR 4986; Luetkemeyer FEC Filing; Sessions FEC Filing]
For the purposes of this report, Allied Progress examined the twelve members of the U.S. House of Representatives who have received at least $25,000 in campaign contributions since 2011 and have also taken official action in support of payday lenders within ten weeks of receiving industry campaign contributions.
- Rep. Spencer Bachus [AL-6] (Received $29,500 from Payday Lenders from 2011-15)
- Rep. Stephen Fincher [TN-8] (Received $26,500 from Payday Lenders from 2011-15)
- Rep. Scott Garrett [NJ-5] (Received $28,500 from Payday Lenders from 2011-15)
- Rep. Alcee Hastings [FL-20] (Received $38,500 from Payday Lenders from 2011-15)
- Rep. Jeb Hensarling [TX-5] (Received $85,750 from Payday Lenders from 2011-15)
- Rep. Blaine Luetkemeyer [MO-3] (Received $44,200 from Payday Lenders from 2011-15)
- Rep. Patrick McHenry [NC-10] (Received $94,199 from Payday Lenders from 2011-15)
- Rep. Gregory Meeks [NY-5] (Received $62,150 from Payday Lenders from 2011-15)
- Rep. Randy Neugebauer [TX-19] (Received $30,500 from Payday Lenders from 2011-15)
- Rep. Pete Sessions [TX-32] (Received $38,280 from Payday Lenders from 2011-15)
- Rep. Steve Stivers [OH-15] (Received $69,625 from Payday Lenders from 2011-15)
- Rep. Kevin Yoder [KS-3] (Received $100,357 from Payday Lenders from 2011-15)
- Sponsored or co-sponsored HR 1121 (2011-12) and/or HR 1266 (2015-)
- Sponsored or co-sponsored HR 6139 (2011-12) and/or HR 1566 (2013-14)
- Sponsored or co-sponsored HR 4986 (2013-14)
- Signed a letter dated 08/22/13
- Signed a letter dated 10/16/14
Case Study 1: Legislation to “Hobble the CFPB” – HR 1121 (2011-12) and HR 1266 (2015-) – Price Tag: $112,899 – Download the full report to read this case study.
Case Study 2: Legislation to “Eliminate Crucial Consumer Protections” – HR 6139 (2011-12) and HR 1566 (2013-14) – Price Tag: $72,850 – Download the full report to read this case study.
Case Study 3: Legislation to Protect Unscrupulous Lenders from DOJ – HR 4986 (2013-14) – Price Tag: $28,500 – Download the full report to read this case study.
Case Study 4: Letter to the Attorney General and FDIC Chairman Questioning Efforts to Stop Unsavory Lending Practices – Sent August 22, 2013 – Price Tag: $74,150 – Download the report full to read this case study.
Case Study 5: Letter to Inspector General of the Justice Department Requesting Investigation of Efforts to Stop Unsavory Lending Practices – Sent October 16, 2014 – Price Tag: $14,600 – Download the full report to read this case study.
1 “Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts, last modified July 19, 2012, http://pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why
2 Mandi Woodruff, “The $46 Billion Payday Lending Industry Is in for a Big Blow,” Yahoo! Finance, February 10, 2015
3 Nick Bourke, “Meaningful Payday Loan Reform Is Within Reach,” The Pew Charitable Trusts, last modified July 21, 2015, http://pewtrusts.org/en/research-and-analysis/analysis/2015/07/21/the-cfpb-5-years-after-dodd-frank-meaningful-payday-loan-reform-is-within-reach
4 Press Release, “CFPB Finds Four out of Five Payday Loans Are Rolled over or Renewed,” Consumer Financial Protection Bureau, last modified March 25, 2014, http://www.consumerfinance.gov/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/
5 The CFPB Office of Research, “CFPB Data Point: Payday Lending,” Consumer Financial Protection Bureau, March 2014
6 Thomas B. Edsall, “Making Money off the Poor,” New York Times, September 17, 2013
7 Danielle Douglas, “Payday Lender Ace Cash Express to Pay $10 Million over Debt-collection Practices,” Washington Post, July 10, 2014
8 Press Release, “CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt,” Consumer Financial Protection Bureau, last modified July 10, 2014, http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-ace-cash-express-for-pushing-payday-borrowers-into-cycle-of-debt/
9 “Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts, last modified July 19, 2012, http://pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why
10 “Payday Lending in America: Who Borrows, Where They Borrow, and Why,” The Pew Charitable Trusts, last modified July 19, 2012, http://pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why
11 “Prepared Remarks of CFPB Director Richard Cordray at the Consumer Advisory Board Meeting,” Consumer Financial Protection Bureau, last modified June 18, 2015, http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-consumer-advisory-board-meeting-2/
12 Lake Research and Chesapeake Beach Consulting, “Bipartisan Support for Financial Regulation and Enforcement,” Center for Responsible Lending, January 22, 2014
13 Americans for Financial Reform, “Payday Pay-to-Play: How Payday, Title, and Installment Lenders and their Trade Associations Lobby and Line the Pocket of Powerful Washington Politicians,” June 2015