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51–583 PDF 2009

H.R. 1214, THE PAYDAY 

LOAN REFORM ACT OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 2, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–24 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

LUIS V. GUTIERREZ, Illinois, Chairman 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JEB HENSARLING, Texas 

J. GRESHAM BARRETT, South Carolina 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

WALTER B. JONES, JR., North Carolina 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

KENNY MARCHANT, Texas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 2, 2009 ................................................................................................... 1 

Appendix: 

March 2, 2009 ................................................................................................... 41 

WITNESSES 

THURSDAY, APRIL 2, 2009 

Flores, Michael, Chief Executive Officer, Bretton Woods, Inc. ............................ 12 

Fox, Jean Ann, Director of Financial Services, Consumer Federation of America .......................................................................................................................... 9

Guzman, Gerri, Resident, Montebello, California ................................................. 14 

McCullen, Troy, President and Chief Executive Officer, Finance America of 

Louisiana .............................................................................................................. 11 

APPENDIX 

Prepared statements: 

Flores, Michael ................................................................................................. 42 

Fox, Jean Ann ................................................................................................... 47 

Guzman, Gerri .................................................................................................. 76 

McCullen, Troy ................................................................................................. 78 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

McHenry, Hon. Patrick: 

Federal Reserve Bank of New York Staff Report entitled, ‘‘Payday Holiday: How Households Fare After Payday Credit Bans,’’ dated November 

2007, revised February 2008 ........................................................................ 82 

(1) 

H.R. 1214, THE PAYDAY 

LOAN REFORM ACT OF 2009 

Thursday, April 2, 2009 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:30 p.m., in room 

2128, Rayburn House Office Building, Hon. Luis V. Gutierrez 

[chairman of the subcommittee] presiding. 

Members present: Representatives Gutierrez, Maloney, Watt, 

Sherman, Moore of Kansas, Waters, McCarthy of New York, Baca, 

Green, Clay, Miller of North Carolina, Scott, Cleaver, Ellison, 

Meeks, Perlmutter, Speier, Childers, Minnick; Hensarling, Castle, 

Royce, Capito, Garrett, Neugebauer, McHenry, Marchant, Lee, 

Paulsen, and Lance. 

Chairman GUTIERREZ. This hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order. 

Good afternoon, and thanks to all of the witnesses for agreeing 

to appear before the subcommittee today. Today’s hearing is a legislative hearing that will examine H.R. 1214, the Payday Loan Reform Act of 2009. 

We will be limiting opening statements to 10 minutes per side, 

but without objection, all members’ opening statements will be 

made a part of the record. 

I yield myself 5 minutes. 

Over the last 2 decades, payday lending has become a very controversial source of credit in many of our communities. The payday 

loan industry is grown in size from roughly 300 offices in 1992 to 

over 24,000 last year. As our constituents are faced with even 

tougher economic conditions during this recession, they are more 

and more likely to turn to the services offered by the payday lending industry to pay for emergency car repairs, an unexpected doctor’s bill, and even groceries for their families. Many of these families have been ignored or shut out of the mainstream financial 

services industry and have nowhere else to turn for credit. 

The last hearing on payday lending in front of the House of Representatives was held in March of 2007, and much has changed in 

those 2 years. More States have enacted protections against abusive payday loan practices by enacting cap rates or by banning payday lending all together. A select few States like New York, North 

Carolina, Pennsylvania, and West Virginia have banned payday 

lending altogether and many States do not offer their citizens even 

2 

a decent level of protection against abusive payday practices. And, 

seven States failed to have any cap on small loan rates. 

Missouri, for example, has an APR cap as high as 1,955 percent. 

While I have and will continue to support consumer groups’ tireless 

efforts to eliminate abusive practices, in the lending industry, they 

are fighting an uphill battle against better-funded lobbyists in 

States like Delaware, New Hampshire and Wisconsin, where there 

is no rate cap at all. 

[chart] 

Chairman GUTIERREZ. This chart separates States into three 

classes: those that have banned payday lending, first; those that 

kept interest rates for payday lenders at 15 percent or 391 percent 

APR; and, either those that have no cap at all or have a cap in 

place that exceeds 391, which is the largest number of 26 States 

there, the object of my bill is to move all 23 of the States in the 

far right column over to the middle column. Then the consumer 

groups will have a realistic opportunity to work their magic and 

move as many States as possible over to the far left column. 

By the way, that column on the far right represents almost 113 

million who would be helped by the bill. The current state of affairs 

for those consumers is unacceptable, and Congress would be derelict in its duty if we allowed them to remain unprotected from abusive and predatory lending. H.R. 1214, the Payday Loan Reform 

Act of 2009, creates significant protections from abusive payday 

practices by preventing rollovers and freeing consumers from the 

debt trap by mandating a cost-free 90-day repayment plan. 

The bill lowers the effective APR of a payday loan to 48 percent 

of 15 cents for every dollar loan. This is a rate that is lower than 

the 23 current State rate caps, including California, Colorado, New 

Hampshire, and even my home State of Illinois. My legislation 

would also prohibit unfair mandatory arbitration clauses, provide 

increased disclosure, and honor all existing, stronger State protections by creating a Federal floor on which stronger laws can be 

built. 

We may hear from the consumer groups today that a similar law 

that was passed in Illinois has been a failure, but according to the 

State Department of Financial Institutions, Illinois’ 15.5 percent 

rate cap has already saved consumers in our State over $35 million 

since its enactment in December of 2006. My bill would move that 

rate cap even lower. 

I recognize that my bill is not a cure-all for this issue. My intent 

with H.R. 1214 is to give the efforts to protect consumer rights a 

boost by creating a minimum level of protection that all consumers 

will enjoy. This legislation would lower the APR cap for nearly 113 

million Americans immediately upon its enactment, despite complaints from the industry that the bill sets rate caps too low and 

assertions from consumers that the bill does not go far enough. 

I think that improving protections for 113 million consumers is 

a significant step in the right direction. The status quo in the payday industry is unacceptable. The Payday Loan Reform Act says 

‘‘no’’ to the status quo. It would protect millions of Americans from 

abusive lending practices in one fell swoop. 

I look forward to hearing the testimony of our panelists and also 

look forward to a lively debate on this controversial issue. 

3 

I yield to the gentleman, Mr. Hensarling, 5 minutes for his opening statement. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Congress and the Financial Services Committee continue to 

enact legislation that retracts credit in the middle of a recession. 

There is the mortgage cramdown that made mortgage loans more 

expensive for some and inaccessible to others. 

Now, just a few moment ago, the credit card bill, which will deny 

credit to some may get more expensive to others; now, we have the 

payday lending bill. The bill before us, I fear, essentially does two 

harmful things: Number one, it establishes price controls; and 

number two, it erodes risk-based pricing, which permits people, 

particularly low-income people who haven’t had access to credit before, to finally have access to needed credit. 

What will the outcome be if we pass this legislation? Again, consumers will lose. They will lose choices. They will lose credit. They 

will lose economic freedom. What will they gain? They will gain 

bounced checks. They will gain utility reconnect fees. They will 

gain eviction notices, and they will gain the opportunity to be 

forced into the underground economy. 

Now, I continue to observe. Particularly, I have been involved in 

the budget debate on the Floor. And listening to my colleagues on 

the other side of the aisle here, how many talk about the benefits 

of the free enterprise system? Yet, we continue to have legislation 

after legislative initiative that appears to attack it and erode it 

daily. 

I would remind my colleagues that just because you don’t need 

or you don’t appreciate a particular service doesn’t mean that your 

neighbor doesn’t. Now, I know we will hear a number of sad stories 

about people who are caught up in cycles of debt, and I assume 

they are all true, and my heart will go out to these people. But I 

wonder though, if this never-ending cycle of debt that we hear so 

often, is that a symptom? Or is that the cause? My belief is that 

it is probably the symptom, and, indeed, I have a quote from a recent Federal Reserve study that said: 

‘‘There is no evidence that loan rollovers and repeat borrowers affect store profits beyond their proportional contribution to total 

loan volume. In other words, the industry’s profitability does not 

depend on the presence of repeat borrowers, per se.’’ 

So I believe we need to go to the root cause of the problem, not 

the symptom; the root cause of the economic turmoil that is affecting the lives of our citizens. 

We need to pass policies in this Congress and in this committee 

that will help preserve our fellow citizens’ jobs today and grow better job opportunities tomorrow, and prevent punitive taxes from 

shrinking their already-shrinking paycheck. 

I have a suggestion. We could start this afternoon by rejecting 

the Democratic budget which establishes a national energy tax 

which CBO says could impact families at $1,600 a month—$300 

billion of new taxes for small businesses with all the layoffs that 

would be associated with that. 

Again, if we pass this legislation, I believe that consumers are 

going to be forced into many alternatives that they may find more 

harmful to them. The average telephone reconnect fee is $50, 

4 

maybe many consumers would have preferred to pay the $15 market fee to borrow the hundred. The average cable reconnect fee can 

be as much as $100. Again, there are many consumers who would 

prefer to pay the $15 than the $100 reconnect fee. A bounced check can average $28.23. Overdraft fees can be $56. 

Now, if we get focused on APR, which may or may not be the best 

way to judge these loans, a bounced check can have an APR of 755 

percent, and you add the overdraft fees. All of a sudden on that 

same $100 loan, you are at 1,449 percent. 

The Chairman of the FDIC has said, ‘‘when used on a recurring 

basis for small amounts, the APR for fee-based, bounced protection 

far exceeds the APRs associated with payday loans. And, given that 

these tend to be small, short loans to people who were credit risky 

without collateral, there are fixed costs associated with these loans. 

The default rates are high. Of course this APR is going to be large, 

but why take away the option of what the consumer wants to do? 

Why replace his judgment or her judgment with ours? 

The answer is economic growth, economic opportunity for our 

neighbors, a competitive market, and effective disclosure. 

Mr. Chairman, thank you, and I yield back the balance of my 

time. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. 

Mr. Moore, you are recognized for 1 minute. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman, for holding 

this hearing and for your hard work in drafting H.R. 1214, the 

Payday Loan Reform Act. I am proud to be a co-sponsor of this balanced legislation, and whenever we have industry on one side saying the bill goes too far, and consumer groups saying it doesn’t go 

far enough, we are probably striking close to a proper balance. 

In Kansas, we already have laws on the books protecting consumers that are nearly identical to H.R. 1214. Our State law already limits a maximum fee of 15 cents per dollar advance in advance rollovers. Applying these kinds of consumer protections to all 

States would probably permit States with tougher payday lending 

laws to maintain those requirements. That, I believe, is the right 

approach. 

Thank you, Mr. Chairman. I yield back. 

Chairman GUTIERREZ. Thank you. 

Mr. Paulsen is recognized for 2 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman, for holding this hearing 

today. 

At a time when the credit markets are frozen or certainly drying 

up, I think it is very important that we ensure that we bring as 

much liquidity into the market as possible, and we need to make 

sure that there are as many options as possible that are available 

for consumers. I found it interesting that a recent report by the 

Federal Reserve Bank of the State of New York noted that payday 

lenders fill a very valuable niche market where banks and credit 

unions have left a void. 

The study found that people in those States that banned payday 

loans bounced more checks. They filed more complaints about lenders and debt collectors and they filed for bankruptcy at a higher 

rate. So, I want to make sure that any legislation that is pushed 

5 

through by Congress does not exasperate those effects throughout 

the country. I certainly understand the goal of protecting consumers, but we must make sure that credit is available for those 

who need it. 

I also have some concerns about the preemption portions of the 

legislation which we will have discussions on. There’s a patchwork 

of legislation out there right now through all the different States, 

but I want to make sure that we don’t mire down the payday lenders with overregulation. I look forward to the testimony today from 

our witnesses, and I yield back to the chairman. 

Chairman GUTIERREZ. Congressman Baca, you are recognized for 

3 minutes. 

Mr. BACA. Thank you very much, Chairman Gutierrez and Ranking Member Hensarling, for your leadership on this important subject. 

The issue of payday advanced lending reform is a critical one and 

I applaud Chairman Gutierrez for introducing the legislation on 

this subject, and, as some of you know I have introduced alternative legislation on this issue. I believe that my bill, H.R. 1846, 

the Consumer Lending Education and Reform Act or the CLEAR 

Act, reforms the payday loan industry, while also ensuring that 

borrowers have access to loans when they are needed. 

In these difficult times students, police officers, teachers, and 

other working Americans sometimes need access to emergency 

credit. These people, like Tina Hall, who would not have been able 

to pay for her daughter’s emergency dental care if it hadn’t been 

for the payday loan she received; and, I received about 47 different 

letters just in my area, and I would like to just read one of them. 

It says, ‘‘Dear Congressman Baca: I come to (blank) for the payday 

loan.’’ I’m not going to give advantage to that one. ‘‘I use the services during an emergency. This is a good service to have when you 

need some money real quick. I feel this is a good service. Please 

don’t take it away.’’ 

Again, we must have access to credit open to borrowers like Tina 

and this person whose letter that I just read, who are doing the 

right thing. But we also must have a clean-up industry with tougher regulations and consumer protections and oversight. The CLEAR 

Act achieves these principles and will also impose a strict national 

fee structure on payment loans. My bill caps it at 15 cents per dollar plus allowance for a 5 percent original fees for loans borrowed 

over the Internet. This additional 5 percent fee for the Internet 

loan is due to higher consumer acquisition cost. 

My bill limits borrowers to refining a loan no more than 2 times 

at a rate of 15 cents per dollar for the first refinancing, and 10 

cents per dollar for the second refinancing. The CLEAR Act also requires lenders to obtain bonding to follow the Fair Debt Collection 

Practice Act and to advise borrowers of the availability of free credit counseling. These provisions will eliminate the fly-by-night lenders who take advantage of vulnerable individuals. It is my preempting existing State law, the CLEAR Act would create a national 

standard; and, I state, create a national standard for short-term 

loans. This will ensure residents of the 50 States have access to 

payday advance loans at affordable rates. 

6 

We must remember that for many of our customers, advance 

loans are more effective than other alternatives, as you can see by 

the chart that we have out here. If a customer with overdraft protection on his or her checking account writes a $100 check, but only 

has $75 in the account, the bank charges them approximately $38. 

If a customer who does not have overdraft protection bounces the 

same $100 check, they will be charged $30. 

If I could have an additional 30 seconds? 

Chairman GUTIERREZ. There is no further time. 

Mr. BACA. Can somebody yield to me? 

Chairman GUTIERREZ. Well, we could try it. 

I recognize Mr. McHenry for 3 minutes. 

Mr. MCHENRY. I will yield to my colleague 30 seconds. 

Mr. BACA. Thank you. Thank you very much. 

Just to finish up, then, if a customer does not have the overdraft 

protection to bounced check for the same $100, they will be charged 

$30 for a bad check, which means both the bank and the merchants are giving them a total of $60. So they’re actually paying 

more than going to a payday than what it would be otherwise. 

The CLEAR Act provides national regulatory reform that contains consumer protection and oversight, while also ensuring working Americans have access to credit. 

I thank the chairman for recognizing me, and I look forward to 

working with him and other members on this important issue. And 

thank you very much for yielding the time. 

Mr. MCHENRY. I thank my colleague, and I thank you, Mr. 

Chairman. I thank the ranking member as well. 

There is going to be a discussion about the North Carolina experience today. In North Carolina, we simply do not have payday 

lending recognized by the State. Now, the failure of State regulation means that there are no State-chartered institutions that are 

allowed to do payday lending. 

However, payday lending still occurs, even though, illegally, in 

North Carolina. There are mechanisms to do that. We have individuals who drive over the State lines to do that. We have those who 

access other opportunities via the Internet. We have other individuals in the State who access credit through simply unregulated 

means. The North Carolina experience is not a good one in terms 

of access for low- and moderate-income individuals to opportunities 

for lending. So the North Carolina experience, we need to be clear 

about. 

Mr. Chairman, I ask unanimous consent to submit a Federal Reserve of New York staff report on payday credit bans. 

Chairman GUTIERREZ. Without objection, it is so ordered. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Beyond that, this is the worst time to further constrict credit. We 

see the recession with the impact on other traditional means of 

lending, the constriction within our credit markets. The access of 

credit has been severely limited right now. The impact on families 

is real and so we need to have regulated means of individuals being 

able to meet their demands, their worldly demands of paying their 

car payment and making their home payment, paying their rent, 

even feeding their kids. This is a very basic function. 

7 

I want to commend the chairman, though I have concerns about 

his legislation. I do appreciate the fact that he has approached this 

in a pragmatic way and I hope that we can have a realistic discussion on how we can properly allow for the function of the credit 

markets in many different ways in this country. And I am very 

grateful for the opportunity to have this discussion before this committee. 

I think it is important, especially now in these tough economic 

times, that we have this discussion about the importance and the 

necessity of payday credit advances. 

Thanks so much, and I yield back. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. 

We have Mr. Scott for a 11⁄2 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

Let me just say very quickly, these are tough times. And with 

the tumultuous financial markets, bank bailouts, rising unemployment, and the continued downturn of our housing markets, many 

working and middle-class Americans indeed are finding it harder 

and harder to make ends meet, and some are turning to short-term 

loans to get them over certain hurdles. This is a market. These are 

consumers. These are our constituents out there who do need help. 

I think what we are trying to do with this legislation, which I 

am a co-sponsor of, Mr. Chairman, as you know, we are asking and 

reaching for what I will refer to as a delicate balance. And that 

delicate balance is to make sure that those of our consumers, those 

of our constituents who need in an emergency situation to have access to safe, protected, and fair means of acquiring funds that they 

need to get them over in a tough time. But, yet, we must do it in 

a way that protects them from getting caught in long-term debt in 

a cycle of debt. This bill will not put payday lenders out of business, but what it will do is it will cause this industry to lose some 

profits; but, all of it at the expense of ensuring that those 23 States 

with weak or even no payday lending rules will receive increased 

protections from those that are less than honest lending practices. 

The bill also will not preempt States that already have laws on 

their books that may be strong or even outlaw some of these practices. And there are those who say the bill does not go far enough. 

There are those who say the bill goes too far. But again, Mr. Chairman, what I feel we have here is a bill that does reach that delicate 

balance that is needed to give access to credit in these tough times 

to those folks who need it, while, at the same time, providing maximum protections for our consumers in this industry. 

I yield back the balance of my time. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. I ask unanimous consent to add an additional minute for 

opening statements on each side. Hearing no objections, it is so ordered. 

Mr. Ellison, you have 45 seconds. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Sadly, there are millions of hardworking Americans out there 

without checking and savings accounts. These are the unbanked. 

Until we change that, until we make much greater progress in 

8 

areas of financial access, we will continue to have payday lending 

industry. 

In the meantime, we have to make sure that all consumers using 

payday loan products are protected. For that reason, I want to commend you, Chairman Gutierrez, on your leadership in convening 

this important hearing on payday lending reform. In sum, I believe 

the legislation makes a lot of progress towards striking a balance 

between ensuring basic protections for consumers and not stifling 

their access to credit. 

However, it’s only a first step of many to provide affordable financial products to all Americans. To that end, I am especially interested to hear more about these efforts of regulated financial institutions like community banks, credit unions, and others, to bring 

millions of unbanked Americans into the fold of the mainstream financial services industry. 

Thank you. I yield back. 

Chairman GUTIERREZ. Thank you. 

Mr. Hensarling, you are recognized for 1 additional minute. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Not unlike the gentleman from California, I have heard from a 

number of my constituents. I have heard from a lady named Theresa in Dallas where I live, a 43-year-old divorcee who recently survived stage 4 cancer. She wrote to me and said: 

‘‘Congressman, without these loans I would have been evicted 

from my apartment on two separates occasions. Please help to keep 

these loans from being banned. There are many of us out here with 

no other choice at all.’’ 

I also heard from Paul in Mesquite, Texas: ‘‘Working payday to 

payday in this economy we sometimes need a quick loan for food, 

gas, utilities, prescriptions. If payday loans are banned, our checks 

may have to bounce and then I have to pay the big banks overdraft 

charges. I won’t name the name of the company. Payday lenders 

are helping working Americans stay afloat ’til payday.’’ 

Mr. Chairman, I hope we keep in mind Theresa of Dallas and 

Paul of Mesquite as we go through this debate. 

And I yield back the balance of my time. 

Chairman GUTIERREZ. We certainly will. 

Mr. Meeks, you are recognized for 45 seconds. 

Mr. MEEKS. Thank you, Mr. Chairman, and I just want to say, 

briefly, that I wasn’t always a Member of Congress. In fact, I didn’t 

always wear a suit like this. 

I grew up in a neighborhood that was tough. My parents had no 

money. And what this is about is about options. It’s about options 

that average, everyday people, good people can have, if, in fact, 

they find a hard time. In fact, it could save their credit. Because, 

if you, not only by paying a late fee, it ruins your credit and stops 

individuals who have aspirations to own a home one day. 

Because when they want to go in that home, if they didn’t pay 

that back to the bank because they paid late, then their credit rating goes down, and, they’re not able to afford a house to even move 

themselves up. This is about options. We have some concerns. This 

bill addresses the concerns to protect consumers. You know, no rollovers or fee capped at 15 cents for every dollar. You know, default 

extended as far as repayment is concerned. So, among others, in 

9 

my brief time, I just want to say that this is for everyday people 

and I don’t have to give the testimony of what someone has given 

me. 

I can tell you that I have lived through it and I have seen these 

results when someone doesn’t have options. I have seen them to go 

to someone else who gives that option, and they don’t pay back. 

Unfortunately, sometimes they come back without a limit, and we 

need to stop that. 

I think this is a good bill and I support it. 

Chairman GUTIERREZ. Thank you. 

Okay. We have some great witnesses. We are going to hear from 

them now. 

Testifying first before the subcommittee is Ms. Jean Ann Fox, 

who is the director of financial services for the Consumer Federation of America, but she is also testifying on behalf of Consumer 

Action, Consumer’s Union, the National Association of Consumer 

Advocates, and the National Consumer Law Center as well as U.S. 

PIRG. 

Please, Ms. Fox, you are recognized for 5 minutes. 

STATEMENT OF JEAN ANN FOX, DIRECTOR OF FINANCIAL 

SERVICES, CONSUMER FEDERATION OF AMERICA 

Ms. FOX. Thank you, Mr. Chairman, and Ranking Member Hensarling. 

I appreciate the invitation to come and testify before you today. 

I am also representing the Woodstock Institute in Chicago. 

We appreciate your interest in protecting consumers from the 

payday loan debt trap that results from these extremely expensive, 

balloon payment loans that are secured by direct access to consumers’ checking accounts. Payday loans are harmful to borrowers. 

They undermine scarce family resources. They risk bank account 

ownership. They double the risk that you will end up in bankruptcy or seriously delinquent on a credit card payment. 

When you study actual payday loan borrowers, you find that 

these products are harmful to the families who use them. We agree 

that payday lending and similar products should be reformed, but 

we respectfully disagree with the specific methods used in H.R. 

1214. The bill authorizes single payment loans for as short as a day 

or two at a cost of 391 percent APR for a 2-week loan, or 782 percent for a 1-week loan. 

The bill sets up an unaffordable repayment term. It has to be repaid in full out of your next paycheck that is deposited to your 

bank account, otherwise, you will end up paying bounced-check fees 

to the payday lender and to your own bank. A family making 

$35,000 a year, which is a typical payday loan income range for 

borrowers, would not be able to pay a typical $300 loan back out 

of their next paycheck, even if the loan were free. These are simply 

unaffordable, single-payment loan terms. 

The bill also authorizes loans to be secured by unfunded checks. 

In other words, to get a payday loan, every borrower has to write 

a check when they have insufficient funds in the bank at the time 

they write it, or they sign over electronic control of their bank account to the payday lender. This bill authorizes lenders to turn a 

debit authorization into a paper check that takes money out of a 

10 

consumer’s bank account, depriving them of current protections 

they would have under the Electronic Fund Transfer Act. 

The narrow definitions of a payday loan and of a creditor in this 

bill also mean that it’s easy to evade application of the law. For example, the chairman mentioned the Illinois experience. Illinois defines a covered payday loan as 120 days, so most of the big payday 

lenders turned their product into 121-day or longer loans, and they 

are not subject to the rate cap or the other provisions in the Illinois 

payday loan law. 

There are other loopholes in this bill. It doesn’t cover open end 

credit. Most of the big payday lenders in Virginia turned their 

product into open end credit to get around changes to the law that 

took effect this year in Virginia. In Texas, almost all of the payday 

loan business is done under the credit services organization model, 

so it is doubtful whether this bill would apply to those payday lenders in Texas. 

The chairman has mentioned that at least rates would go down 

in some of the States where rate caps are set higher than $15 per 

hundred; however, in 10 of those States, there’s no rate cap for an 

installment loan, so there would be little barrier to the payday 

lenders just changing their product into a 91-day installment loan 

and continuing to charge even higher interest rates. 

The protections against the payday loan debt trap in this bill are 

well-intentioned and we appreciate that, but they have been tried 

in other States and they don’t stop payday lending from being a 

debt trap. The average customer has nine loans per year, even in 

States that limit you to one loan at a time, or that prohibit renewals or that have repayment plans. As long as you allow this product 

to be offered under the terms of a typical payday loan, you will 

have a payday loan debt trap. 

Congressional approval for a bill that caps rates at this high rate 

will undermine the momentum in the States. For example, at the 

ballot box last fall, voters in Arizona rejected a ballot initiative that 

had the same rate cap, the same kind of repayment limits, as are 

included in this bill. Voters rejected 391 percent lending in Ohio 

and the trend in the States is away from legalizing payday lending, 

and the momentum is toward restoring conventional, smaller rate 

caps; and, I fear that passing this bill would undermine that momentum. 

We urge you to ban loans secured by getting consumers to write 

unfunded checks and we urge you to support the rate cap in Representative Speier’s H.R. 1608, which would provide real protection 

for all forms of credit to all consumers. 

[The prepared statement of Ms. Fox can be found on page 47 of 

the appendix.] 

Chairman GUTIERREZ. Thank you. 

I tried to give the gentlelady a little more time, since she is 

against the bill, but we are going to show fairness here. But I hope 

we won’t all continue, Mr. McCullen, as you are next, the president 

and chief executive officer for Finance America of Louisiana. 

You are recognized for 5 minutes. 

11 

STATEMENT OF TROY McCULLEN, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, FINANCE AMERICA OF LOUISIANA 

Mr. MCCULLEN. Thank you, Mr. Chairman, and members of the 

subcommittee. 

It is an honor to be here today. I own the largest small-loan company in Louisiana, and operate 30 locations. I am also president of 

the Louisiana Cash Advance Association, and, working closely with 

the Louisiana legislature and the Office of Financial Institutions, 

helped draft and implement the laws that we currently operate. 

Our laws are working and I want to offer you information that 

will help you in your decisionmaking process. From the beginning 

we had two specific goals in mind: provide structure to a service 

that customers need and want; and implement tight consumer protections. All lenders are licensed, regulated, and extensively audited by the Office of Financial Institutions. And I believe we have 

one of the best consumer protection laws in the country. 

If you want a national standard, and want to implement something that will work, implement Louisiana’s law. As with any new 

industry, ours has certainly had its problems, and there have been 

bad operators just as in any industry. But, with lots of hard work, 

things are leveling out and in Louisiana, the number of lenders is 

actually dropping. This phenomenon happens in every new industry, and it’s the way our country’s free market system works. Businesses rise and fall based upon consumer demand. 

I believe we will continue to see downward adjustments and consolidations in the future. Louisiana’s law provides for full disclosure of all fees and terms on the promissory note including APR. 

It prohibits companies from accepting fees to rollover, flip, or renew 

a loan. This is one of my personal hot buttons, and our law keeps 

consumers from getting into a cycle of debt. Our law allows for the 

collection of reasonable attorneys fees and court costs, and mandates the posting of a fee schedule and the Office of Financial Institutions 800 number for complaints. 

The maximum fee allowed on a cash advance in Louisiana is 

16.75 percent of the face of the check. This means when someone 

borrows $100, the fee is $20. If they borrow $200, the fee is $40; 

no compounding; no excessive fees. There is a $45 fee cap; and, like 

other lenders, we are allowed a $5 documentation fee. There are 

very few complaints. In fact, Louisiana had over 4 million transactions in 2008, and regulators only received 24 complaints, of 

which only 2 pertained to excessive fees. 

While we are an open book and disclose all fees in the promissory note, I believe we should be taken out from under the Truth 

in Lending. Ours is a fee-based business and APRs should not 

apply. Money is just like any other commodity and applying APR 

to our business skews reality and is illogical. 

I compare our business to a Triple A rental store. You can buy 

a hedge clipper at Home Depot for $100 or you can rent it from Triple A for $20. Our customers rent the same way. It’s just that our 

product is money, and they pay a fee for the convenience. If they 

do not need our service, they will not come in. 

An example of how someone would use our services if they 

bounced three $50 checks, the total fees could exceed over $150. If 

12 

the same person borrows $150 from one of our stores, the fee is 

around $30; $150 versus $30. It’s that simple. 

Defaults are a constant problem. If a $300 loan customer charges 

off, 7 other customers must pay in order for us to break even. Louisiana’s law could be better by allowing us to reduce or control bad 

debt in a better way. Some States have implemented a database 

which allows for only one or two loans at a time. 

I am not in favor of the database, but controlling consumer bad 

debt would be a benefit. We use Teletrack to track data, and if a 

customer has more than one loan, we will not loan to them. If they 

have charged-off somewhere else, we will not loan to them. The 

consumer groups want you to believe that we are trying to put people deeper into debt when in reality we want our customers to pay 

and not default. It’s perception versus reality. 

The consumer groups have done an excellent job of spreading 

this information, and I have realized that perception can become 

reality when repeated enough times. But the horror stories you see 

in the newspaper and on television are not reality in Louisiana; 

and, for the record, we are not predatory. We take no collateral, 

and there is nothing to take away. 

Again, the consumer groups are spreading incorrect information 

and they know it. They have hijacked the word ‘‘predatory’’ and are 

incorrectly applying it to us. Predatory lending applies only to the 

mortgage business. It has nothing to do with rates or fees or APR. 

If it did, every NSF fee would be considered predatory. 

According to the recently released FDIC study of bank overdraft 

programs, the average $66 check that bounces and is repaid in 2 

weeks incurs an APR of over 1,000 percent. A $60 ATM overdraft 

that is repaid in 2 weeks incurs an APR of over 1,100 percent. 

ATM overdrafts and NSF overdrafts paid by the bank for their customers are extensions of credit. 

I am not suggesting that you apply APR to these extensions of 

credit, but my point is that if you apply APR to us, then the same 

should be applied to them. I am comparing apples to apples. If you 

exempt them— 

Chairman GUTIERREZ. The time of the gentleman has expired. 

[The prepared statement of Mr. McCullen can be found on page 

78 of the appendix.] 

Chairman GUTIERREZ. Testifying third is Mr. Michael Flores. He 

is the chief executive officer of Bretton Woods, Incorporated, a 

management consulting firm. And, Mr. Flores, your chart that you 

brought is going to be to my left, your right. Sorry, we can’t put 

it on the other side closer to you. 

STATEMENT OF MICHAEL FLORES, CHIEF EXECUTIVE 

OFFICER, BRETTON WOODS, INC. 

Mr. FLORES. Thank you, Chairman Gutierrez, Ranking Member 

Hensarling, and members of the subcommittee. 

I am CEO of Bretton Woods, a management consulting firm. And 

my clients include banks, thrifts, credit unions, payday lending industry, and bank technology companies. I have more than 30 years 

experience and have taught at the graduate school of banking in 

Madison, Wisconsin, and the Pacific Coast Banking School of SeVerDate Nov 24 2008 13:57 Aug 19, 2009 Jkt 051583 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\51583.TXT TERRIE
13 

attle, Washington, and published several articles and studies on 

the financial services industry. 

In essence, my business is helping banks improve profitability. 

Because this hearing is about payday lending, I am here today to 

put this in the context of the bigger picture: short-term, unsecured 

credit market. The short-term credit market is made up of products 

and services for people who need a small amount of cash for a short 

period of time. It is more than a $70-billion market that includes 

credit cared overlimit fees, overdrafts, NSF, and payday loans. 

Additionally, the market includes tens of billions of dollars in 

late fees or reconnect fees, as has been mentioned earlier. All of 

these credit products are short-term and are all unsecured. Currently, banks and credit unions control the largest share of this 

market. That may come as a surprise to some people, because very 

few banks offer the unsecured short-term dollar products, typically 

considered to be a loan. 

As the committee may know, only 30 banks have signed up for 

the FDIC small loan pilot program, which was designed to see if 

alternatives to payday lending could be offered profitably. The results are not in, but I am not encouraged that they will be profitable or encouraging. I have worked with banks over these years, 

and this legacy cost structure of banks inhibit their ability to offer 

these small-dollar, short-term credits in a profitable manner. 

So what role do banks play in a short-term credit market? Well, 

primarily through insufficient funds known as bounced check fees 

and overdraft protection, these products are all part of a competitive marketplace and all are considered alternatives to payday 

loans. 

[chart] 

If you will refer to our first chart here, the pie chart, published 

research I conducted in November and December of 2008 and recently updated in early March of this year found that banks and 

credit unions earn $34.7 billion in combined NSF and overdraft 

fees. By comparison, the late and overlimit penalties on credit 

cards was $20 billion, and payday lenders earned $7.3 billion for 

2008. 

As had been mentioned earlier in your hearing 2 weeks ago on 

overdrafts and credit cards, these fees for banks are an increasingly significant source of revenue for these banks. As a matter of 

fact, if these fees were eliminated or reduced, many banks would 

be profitable in this country. 

Now, from the consumer perspective, when a consumer doesn’t 

have enough money to pay a bill in his or her checking account, 

then they have the option of either bouncing the check using overdraft protection, getting an advance on a credit card, or using a 

payday loan. 

[chart] 

If you will look at chart two, please, it has been mentioned earlier about the FDIC study, that the average cost of a bounced check 

was $66 or the average amount was $66. Before that transaction, 

the consumer would pay $27 in overdraft fees. If they did not have 

overdraft protection, the fee would be averaging almost $29 to return the check, plus a merchant fee of over $26, payable to the 

merchant to whom they wrote the check. 

14 

In comparison, a customer who took out a $66 payday advance, would pay approximately $10.56, based upon 16 cents per dollar 

advance. Just by looking at the household data, you can get a sense 

of what option is used most. This is one of the major points I want 

to make today, if you will bring up the next chart please. 

[chart] 

There are approximately 101 million households with checking 

accounts in this country. In States where payday loans are on a national average, these households pay approximately $343 in NSF 

and overdraft fees per year. In States where payday loans are 

available, the average household pays $239 per year. And, in 

States where these loans have been eliminated, the average household pays $496 a year in NSF and overdraft fees. 

Now, I want to stress that I don’t maintain there is a direct relationship, but I think this is a significant indicator and should justify an extensive and robust study considering all the variables to 

determine if there is indeed a direct correlation between availability of an option, such as a payday loan, and the impact on NSF 

and overdraft fees. 

In conclusion, I am a proponent of competition and I am a proponent of options for the consumer. As long as there are options 

available, the consumers are smart. They will look for the best 

value at the lowest cost, and I would hope this legislation strikes 

a balance that encourages competition and not reduces competition. 

Thank you. 

[The prepared statement of Mr. Flores can be found on page 42 

of the appendix.] 

Chairman GUTIERREZ. Thank you very much. 

And, now we have, last but not least, Ms. Gerri Guzman, a resident of Montebello, California, who is coming before us today to 

discuss her role as a payday lending consumer. 

You are recognized for 5 minutes, Ms. Guzman. 

STATEMENT OF GERRI GUZMAN, RESIDENT, MONTEBELLO, 

CALIFORNIA 

Ms. GUZMAN. Thank you. 

Good afternoon. My name is Gerri Guzman. I am a resident of 

Los Angeles County in California. 

I currently serve on the Montebello Unified School District Board 

of Education, where I serve 33,000 kindergarten through 12thgrade students and their families, 78 percent of whom qualify for 

free or reduced lunch. I am also active in the following organizations: Optimists International; the Boys and Girls Club; and my 

local chapter of the American Red Cross. 

I have also been a payday lending customer, and I am here today 

to talk about that experience. I am thankful for the opportunity to 

be here, as I think sometimes with issues like payday lending, the 

opinions of the people who actually use the service aren’t often 

heard. 

I also would like to add that when my City considered a moratorium on payday lending business licenses, I took the opportunity 

to meet with several community members to listen not only to their 

experience but to gain an understanding of why my community 

uses payday lenders. 

15 

Personally, I consider payday loans to be a necessary evil. If I 

had the choice, I would never have been in the situation where I 

needed a payday loan. I am sure this rings true for tens of millions 

of lending customers around the country. In a perfect world, we 

would all have the money set aside in a savings account to cover 

the expenses that are unexpected or unavoidable. But having much 

money in a savings account is not a reality for many working families, especially today. 

I first became a payday lending customer when I decided to leave 

my job and become my mother’s primary caretaker 14 months prior 

to her passing. I do not regret for a moment my decision; however, 

I would be lying if I told you it didn’t create a temporary financial 

hardship. At the time, my options were to take out a payday loan 

or not to purchase a water heater. 

I was aware of the cost of the payday loan and decided that it 

was the best option for me at the time. Thankfully, my financial 

circumstances have changed, and, although I am no longer a payday customer, I would like to know the option is available should 

I need to be again. I do wish that there were more choices and better choices for consumers, but in reality, there are not. There are 

more choices in tough financial times. People have the smarter decisions they can make and the better off they will be in the long 

run. 

I, like most people in this day and age, am budget conscious and 

look for the best options available in all situations. I knew what 

a payday loan would cost, but the bottom line is the process was 

simple and quick. I am aware that payday lending customers often 

get themselves into trouble, and some people make poor choices 

and get caught in a debt spiral. But, certainly, this is not unique 

to only payday lenders, lending customers. 

I do think that it is important that the government protect people from predatory lenders and abusive practices. I would like to 

see a mechanism in place to minimize a likelihood of payday lending customers getting trapped in a cycle of debt. I am sure that 

most people intend to pay off their loan when it is due, but often, 

unexpectedly again, the money is not available. 

In these situations, it is important that a lender work with a borrower to make sure they aren’t worse off than they were before. An 

adjusted pay plan would be very helpful to many consumers and 

certainly be more realistic. It would also be helpful to make it easier for customers to compare credit products. 

Most of my neighbors are hard-working middle-class and lowerclass families. Very minimal healthcare insurance often makes it a 

necessary situation to make a choice of making a payday loan or 

having bounced a check or doing without the necessary services. It 

would be helpful to make it easier for customers to compare those 

products. Companies need to be up-front and clear about how much 

the borrower will pay for the loan and exactly when it is due back. 

However, I have found that even with the information to make 

an informed decision, emergency situations often create urgency 

and all too often the quickest, easiest solution wins out over reason. 

I want to thank you today for your time. I appreciate the opportunity to represent the tens of millions of payday lending cusVerDate Nov 24 2008 13:57 Aug 19, 2009 Jkt 051583 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\51583.TXT TERRIE
16 

tomers across the country, many of whom I represent. We each 

have our personal reasons for going to a payday lender, but I think 

that almost all of us would agree that while this is not a perfect 

option, and it’s not right for everyone, we are very grateful that the 

option was available when we needed it. 

Thank you. 

[The prepared statement of Ms. Guzman can be found on page 

76 of the appendix.] 

Chairman GUTIERREZ. Thank you very much. 

I appreciate the testimony of all of the witnesses. 

First, let me take in terms of my 5 minutes, I think it is probably 

better to talk about a specific amount of money in relationship to 

$100 in terms of the service. Because when you do the APR, I’m 

not quite sure you can compare an apple to an apple and an orange 

to an orange. 

That’s just my point of view. People can continue to use the APR 

argument if they wish to do so. 

I would like to share with Ms. Fox that I appreciate her testimony and I would like to have an opportunity—I addressed a group 

of consumer groups earlier today, this morning, so that we can 

begin the process of dialogue and open communication. Because it 

is clear, given her testimony, that you don’t grasp the bill and what 

our goal is in the bill. 

First of all, I want to make sure that everybody understands 

what our bill does. It allows you 6 payments, 13 days apart for 78 

days, and including the 14 days, that’s 92 days. But if you listen 

to the testimony that was given earlier, you would think that you 

could simply roll it over. Well, we have a ban on rollovers. We have 

a ban on non-sufficient funds and being able to submit a check for 

non-sufficient funds. And our APR is actually lower than Louisiana, which is at 521. We were just at the 391, because we specifically relate $15 to 100. 

And then, of course, they said, well, they got around the bill. Ms. 

Fox says that and she is right. This is not an installment loan protection program. This is about the payday industry. We hope in the 

near future to be able to deal with installment loans, but that is 

not what we are talking about today. 

If people change the nature of their relationship with those providing funds, those changes should not be attributed to this measure. This measure, as many of my colleagues who are supporting 

it understand, is a measure which will allow us to take 23 States 

and over 100 million people who do not have these protections 

today and be able to encourage them. 

Ms. Fox, in your testimony you assert that H.R. 1214 would provide congressional approval for payday lending. I find the argument confusing. See, by not acting to curtail payday lending in over 

18 years, it has gone from 300 store funds to 24,000. So has not 

Congress already provided its approval? 

Nine million Americans participate in legal and authorized payday lending. Wouldn’t Federal regulations on payday lending demonstrate that Congress is paying attention and ready to regulate 

the industry? 

17 

Is your argument that no Federal legislation on payday lending 

would send us a message that Congress disapproves of payday 

lending? 

Ms. FOX. Thank you, Mr. Chairman. 

The action that Congress has taken on payday lending to-date 

has been to ban this product for service members and their families. In 2006, you enacted a provision in a defense authorization bill 

to put payday lending off limits to service members at the request 

of the Department of Defense, because this product was viewed as 

being harmful to them. 

Typically, small loan products are regulated at the State level 

where State laws authorized certain types of lending, like installment lending, pawn shops, or payday loans. Typically, Congress 

does not enact authorization bills for specific products. You have 

over-arching laws like Truth in Lending, which require all creditors 

to tell consumers what their loans cost. 

Chairman GUTIERREZ. I guess I understand those things, and 

since even though I am the chairman, my time is still limited to 

5 minutes. 

Ms. FOX. Okay. 

Chairman GUTIERREZ. The issue here is whether or not we wish 

to take 23 States and over 100 million consumers and offer them 

a protection they do not have today. 

And so, I guess, would you like to see rollovers eliminated in 23 

States, which this bill does? Just yes or no, because I know my 

time is waning. 

Ms. FOX. This bill doesn’t stop back-to-back lending. 

Chairman GUTIERREZ. It does. It does do that. 

We will have a continuing conversation about it because it does, 

and it specifically states it. 

You know, if you wish to be against the bill because you wish us 

to do nothing other than eliminate payday lending, which in your 

statement anybody can read and extrapolate, Ms. Fox, you don’t 

like the payday. I don’t like the payday. You wish to eliminate it. 

You wish to ban it. 

That’s not possible. That’s not possible. So what we’re trying to 

do, many of us, is to reform that very system that many of us, and 

as I stated earlier, we would like to take the columns over. But 

that’s just not possible. So as we look at those situations in this 

Congress, and I just would like to say to the lady also that, you 

know, I began the amendment process for the military servicemen 

here in this committee that got it down to 36 percent. We were successful in that venture. 

I think I have a good gauge of what is and can or cannot be successful. But I will work with you, because the only bill that we 

have gotten after I introduced this bill is a bill that makes it harsher on consumers vis-a-vis the payday industry. I look forward to 

working with those who have the ability of doing better. 

I yield to the gentleman, Mr. Hensarling, 5 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Okay, Ms. Fox, I guess I have to bite on this one. I think I heard 

the chairman say, and I’m not sure I completely heard you make 

this definitive statement, but is it the position of your organization 

that payday lending should be banned? 

18 

Ms. FOX. It is our position that consumers should be protected 

from triple-digit interest rates. They should not be exposed to writing checks without money in the bank as security for a loan, and 

they should have an affordable repayment schedule. 

Mr. HENSARLING. Well, unfortunately, Ms. Fox, I have a short 

period of time. 

You would do well in this institution as well. We’re not particularly good about giving yes or no answers either. 

[laughter] 

Mr. HENSARLING. I am curious, and I’ll throw this open to anybody on the panel. I believe that the best consumer protection is 

a competitive market. I have spent a number of years in the business world. I think I have history. I think I have evidence. 

If I did my own homework properly, I have seen studies that tell 

me that there are over 22,300 payday stores in America. I saw one 

study from a particular State that said there were more payday locations than McDonald’s, Burger Kings, and Wendy’s combined. I 

had my staff pull the ‘‘Yellow Pages’’ out of Dallas. I’m a Dallas 

resident, and there were over 125 different payday locations: 46 locations of Ace Cash Express; 25 of Cliff’s Check Cashing; 14 Advance America; 13 Check and Go; 10 Easy; 7 Check Into Cash; 6 

Federal Cash Advance; 4 Speedy Cash; and too many Cash America locations to even count. 

To me, it seems like a fairly competitive market, and I am fearful 

that the underlying legislation might make it less competitive. 

Does anybody want to take the opposite view that there is a competitive marketplace? 

Seeing none, let’s talk about what might happen if we lack competition in that market. 

The gentleman from North Carolina, who isn’t here at the moment because I saw him speaking on the Floor out of the corner 

of my eye. 

Mr. WATT. One of them is. 

Mr. HENSARLING. The gentleman who agrees with me is not! 

[laughter] 

Mr. HENSARLING. The one who introduced the Federal Reserve 

study into the record, I would like to quote from that same Federal 

Reserve Study, which investigated how consumers fared after payday lending was essentially banned in Georgia and North Carolina. 

I’m sure the gentleman from North Carolina will have an opportunity to speak to that, but the Federal Reserve study concluded: 

‘‘Compared with households and states where payday lending is 

permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and 

debt collectors, filed for Chapter 7 Bankruptcy protection at a higher rate. North Carolina households have fared about the same. This 

negative correlation reduced payday credit supply, increased credit 

problems, contradicts the debt trap critique of payday lending, but 

is consistent with the hypothesis of payday credit is preferable to 

substitutes such as the bounced check protection sold by credit 

unions and banks or loans from pawn shops.’’ 

That is from the Federal Reserve. 

Does anybody on the panel wish to take issue with their conclusions? 

19 

Ms. FOX. Yes. 

Mr. HENSARLING. Ms. Fox, we will give you a short amount of 

time. 

Ms. FOX. Yes. When studies are done that look at actual payday 

loan borrowers, they find that they are better off without this product. For example, in a large Texas study, payday loan borrowers 

are twice as likely to end up in bankruptcy in the next 2 years, as 

people who applied for it and were turned down for the loan. 

Mr. HENSARLING. Well, Ms. Fox, do you not believe the earlier 

testimony as far as various APRs? I think the gentleman from Louisiana talked about the average fee for bounced checks and reconnect fees. 

Do you doubt that evidence? 

Ms. FOX. Absolutely not, as we testified earlier in March. We 

think overdraft loans are the bank equivalent of payday lending, 

and this committee can deal with that by enacting Representative 

Maloney’s H.R. 1456. 

Mr. HENSARLING. Well, I cut into the remaining time I have. I’m 

going to try to get another question in here if at all possible. But 

I know we just had this debate on credit cards, and yes, credit card 

terms can be confusing. I have walked into a number of payday 

stores in Dallas, Texas. The fees are right there on a big board. It’s 

not confusing to me. I talked to several customers. They seem to 

know exactly what they were doing and they were very happy to 

have that option versus a lot of other alternatives that were less 

so. 

Mr. McCullen, in Louisiana, are these hard-to-understand transactions? 

Mr. MCCULLEN. No, sir, they are not. 

Chairman GUTIERREZ. 15 seconds, Mr. McCullen, to answer the 

question. 

Mr. MCCULLEN. They are not. Everything is posted and listed on 

the promissory note and the customer understands exactly what 

the fees are. There are no hidden fees. 

Ms. GUZMAN. Is there any time for one additional, brief comment? 

Chairman GUTIERREZ. No, I’m sorry. A little later on, I’m sure 

we will come back to you Ms. Guzman. 

We have about 111⁄2 or 12 minutes. I am going to stay and listen 

to the gentleman from North Carolina as it has already been kind 

of prepped up. We don’t want to take a break. 

So the gentleman from North Carolina is recognized for 5 minutes, and then we are going to go vote and come right back. 

Mr. WATT. Thank you, Mr. Chairman, because I might not be 

able to come back. And I appreciate you getting my questions in 

or comments in before I leave. 

First of all, I want to start by inviting all of my colleagues who 

say they believe in States’ rights to come on back and join the 

States’ rights caucus that I have been trying to remind them they 

have deserted. I have no problem with helping these 23 States, but 

when the chairman says that we can’t ban payday lenders, that’s 

exactly what we have done in North Carolina. 

Whether I agree with it or don’t agree with it, we have a State 

legislature there. They have considered this issue. And I have been 

20 

trying to decide, trying to review the bill to be clear on whether it 

does preempt State laws or whether it does not preempt State 

laws. To the extent that it preempts State laws, North Carolina’s 

law, it may well be helping the 23 States that the chairman said 

that it helps, but it’s overriding North Carolina’s law which says 

you can’t do this in North Carolina. 

So unless we can write this bill in such a way that the provisions 

of it are a true floor as opposed to a preemption, I have serious 

problems with it and I don’t read these provisions to do that. 

Chairman GUTIERREZ. Will the gentleman enter into colloquy 

with me? 

Mr. WATT. I’m happy to. 

Chairman GUTIERREZ. That is the intent of the bill—not to preempt. 

Mr. WATT. I have been told that. 

Chairman GUTIERREZ. And I look forward to working with you, 

because I know you’re really good at the law and drafting legislation so we can make it as explicit as possible to make sure that 

we reach that goal. 

Mr. WATT. I just want to make clear that when you find all of 

these folks who are supporting this bill, when you make that clear, 

the room will get a lot more scarce than it is today. If this bill is 

a floor, and we are explicit that it is a floor, then I think we are 

moving the state of the law forward; but, if it is a preemption of 

State law, then in North Carolina, we haven’t moved. 

Chairman GUTIERREZ. Would the gentleman yield? 

Mr. WATT. My legislators tell me they don’t want payday lending 

in North Carolina. 

Chairman GUTIERREZ. It will be a lot easier, my friend, because 

if that isn’t accomplished—and I know that you and I can get that 

done explicitly in this legislature—then the room won’t be empty 

or full, because I’ll simply withdraw the legislation as a sponsor 

and ask my colleagues. It will cease to exist as a bill, if we are not, 

and I look forward to working with you because I know the clarity 

with which you can write that legislation. 

Mr. WATT. I am glad to hear that from the Chair, and I hope everybody in the room heard it. 

Mr. SCOTT. Will the gentleman yield for one second? 

Mr. WATT. I am happy to yield to my gentleman friend from 

Georgia. 

Mr. SCOTT. Thank you very much, the gentleman from North 

Carolina. Our case is very similar in Georgia where we also have 

outlawed payday lending. And as a co-sponsor of this bill, I can assure you that we will make, if it is not clear as is, we certainly will 

make sure that it is clear, and the chairman has spoken. 

Mr. WATT. Well, I am reading the language on page 10, ‘‘Requirements of this subsection regarding extended repayment plan shall 

supersede any repayment plan requirements under any State law.’’ 

I don’t know what that means. Perhaps we will be able to clarify 

it. I am reading that we preserved the enforcement authority of the 

attorneys general. That is on page 16 of the bill. 

But, I am also reading, ‘‘Scope of application: the provisions of 

the section apply to any person or entity that seeks to evade its applicability by any device, subterfuge, or pretense whatsoever.’’ 

21 

North Carolina has done it openly, not by pretense, subterfuge or 

device. They have done it openly. 

So, I mean, if your intent is that, and we can get there, I’ll be 

right there with you. 

Chairman GUTIERREZ. Thank you. 

The time of the gentleman has expired. 

I wanted you to have the opportunity, and Mr. Royce has a question. So we will try to get that in. 

I would encourage people to go vote, and we will be right back. 

Mr. ROYCE. Thank you very much, Mr. Chairman. 

In light of the time, let me just ask this question of the witnesses. You know, some author referred to payday lending as predatory in nature, but on that topic, the New York Federal Reserve— 

and this was during the time that our current Treasury Secretary, 

Tim Geithner, was the bank’s president—did a study entitled, ‘‘Defining and Detecting Predatory Lending.’’ And in that study, they 

come to this issue of payday lending, and they note: 

‘‘Our findings seem mostly inconsistent with the hypothesis that 

payday lenders prey on lower, for example, lower the welfare of 

households with uncertain income, or households with less education. Those types of households who happen to live in the States 

that allow unlimited payday loans are less likely to report being 

turned down for credit, but are not likely by and large to report 

higher debt levels, contrary to the overpowering prediction of our 

model.’’ 

So I was going to ask Mr. McCullen: Do you agree with the New 

York Fed’s assessment of payday loans? 

Doesn’t the presence of a robust short-term credit market in fact 

benefit some consumers by increasing the availability of credit to 

them: And I will also ask Ms. Flores that question. 

Mr. MCCULLEN. Yes, sir, Mr. Royce. 

People use us for all kinds of different reasons, and it’s a lot of 

credit almost that people can use at any point. 

Mr. ROYCE. And, Mr. Flores, your observations on that front? 

Mr. FLORES. I am in full support of the fact that the availability 

of payday lending certainly assists those consumers. 

Chairman GUTIERREZ. We have 5 minutes to get over and vote. 

We will make sure you get all your time when we get back. 

Mr. ROYCE. Well, I’ll just conclude then, Mr. Chairman, by saying, let’s make sure in terms of that credit availability for people 

that try to access credit, let’s make sure that they’re allowed, you 

know, that we don’t foreclose that option for them as we move forward. 

And, again, Mr. Chairman, thank you. 

Chairman GUTIERREZ. Yes. We are going to recess for the vote. 

I have an emergency meeting I need to go to. Mr. Ellison will be 

filling in for me when we get back. 

[recess] 

Mr. ELLISON. [presiding] The hearing will be called back to order 

and reconvened. The Chair will recognize himself at this time for 

5 minutes. 

Ms. Fox? 

Ms. FOX. Yes, sir. 

22 

Mr. ELLISON. In your testimony, you asserted that H.R. 1214 

could provide congressional approval for payday lending. I find this 

argument somewhat confusing. By not acting to curtail payday 

lending over the—oh, sorry. 

Ms. Fox, it is clear from your testimony that you are very much 

opposed to H.R. 1214, and any attempts to regulate the payday industry that would stop short of banning the product. Part of what 

you do for a living is to count votes. 

Is there legislation currently in the Congress that would ban 

payday lending that you believe has enough support to pass both 

Chambers, and be signed into law? 

Ms. FOX. We believe that consumers need protection from all 

forms of extremely expensive credit. Senator Durbin’s S. 500 and 

Representative Speier’s H.R. 1608 would provide the traditional 36 

percent small loan rate cap that would cover everything from bank 

overdraft loans to payday loans. 

President Obama ran on a platform supporting a 36 percent rate 

cap, and voters in America support that by 70 percent— 

Mr. ELLISON. Reclaiming my time, Ms. Fox, does that piece of 

legislation you just cited have enough votes to pass? 

Ms. FOX. I am ever hopeful that Congress wants to support consumers caught up in a disastrous credit— 

Mr. ELLISON. Thank you, Ms. Fox. Ms. Fox, you know, you have 

heard the testimony of Ms. Guzman. She did say that—believe her 

term was a necessary evil, something that people don’t want, but— 

and I’ll be the first to agree, that I tend to not have a lot of problems with payday lending. 

But if you just simply foreclose the option outright, what happens to people like, say, Ms. Guzman? Does she now have to 

bounce a check to get that water heater she needed? What about 

the situation where you just need some money, you don’t have anybody to go to, and your options are to bounce a check or just suffer, 

I guess. What about that? 

Ms. FOX. We think consumers deserve better than payday lending, and in California— 

Mr. ELLISON. Okay, Ms. Fox. Thank you. Thank you, Ms. Fox. 

So Ms. Guzman, your situation—I mean, do you think that the 

bill that we’re talking about now balances the equities in a reasonable way? As you already pointed out, you’re no big fan of payday 

lending either, but if you have to do something, and you’re really 

in a jam, do you think it balances the equities? 

Ms. GUZMAN. I think it is offering a very realistic answer to payday lenders. It gives them the option and access, which is the 

American way. And at the same time, it protects the consumer, 

which is what we look traditionally from our government for, a 

minimal amount of protection, in this case from the situation getting out of control, or not having, you know, the certain protections 

you need to not continually live in this type of debt. 

Mr. ELLISON. Thank you, Ms. Guzman. 

Mr. Flores, how could the payday product be improved to make 

it more useful to the consumer, in other words, eliminate the debt 

trap, and to make the loan easier to repay? Do you have any views 

on this? 

23 

Mr. FLORES. Yes, sir, I do. I have read the legislation, and I 

agree with the—certainly the disclosures. I’m not necessarily for 

the Truth in Lending disclosure, because I think that’s misleading. 

I like the 6-month payment plan. That certainly offers relief to the 

consumer. And so I think those would be the key issues. 

One point I would like to make, though, on that legislation, is 

the $.15 per dollar cap. Philosophically, I’m against price caps or 

price controls, and not just from the business’s profitability standpoint, but as businesses grow, and costs increase, be it salaries, 

overhead, whatever, there’s no additional relief for that company to 

do something with pricing, short of trying to control expenses more. 

And so I think that is an issue that I would take with this. Otherwise, I think the bill will strike the balance that you’re looking 

for. 

Mr. ELLISON. Mr. Flores, in your testimony you also indicate 

that, ‘‘the legacy cost structures of banks inhibit their ability to 

offer short-term low-dollar credits in a profitable manner.’’ 

Could you elaborate on what you mean by that? 

Mr. FLORES. Banks have a huge investment in what we call brick 

and mortar, branch offices around the country that have huge operation centers, information technology centers, and personnel. And 

the way they are designed—the cost for them—and we looked at 

this many years ago, and a lot of banks, we said, you cannot make 

an individual loan under $5,000. 

The resource it needs, the individual resource, the systems resources, the compliance costs, the documentation cost, to make a 

$5,000 loan, is the same that would make a $500 loan. And they 

cannot—and they just don’t have the cost structure to efficiently 

offer that product. 

Mr. ELLISON. The gentleman from Minnesota’s time has expired, 

and the Chair will recognize Mr. McHenry from Texas. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Ms. Fox, a basic question for you: If payday loans were prohibited nationwide, let’s say we did that legislatively, what do you 

think would replace it? 

Ms. FOX. If payday loans were prohibited nationwide, consumers 

would save billions of dollars in repeat lending. 

Mr. MCHENRY. Yes, but what would replace it? 

Ms. FOX. Consumers would use traditional small loan companies. 

That’s what happened in North Carolina, when payday lending was 

expelled— 

Mr. MCHENRY. I’m from North Carolina, and that’s not truly the 

case. They travel to South Carolina, they use other mechanisms. I 

mean, people need short-term lending, and what you’re saying is, 

in essence, people just bounce a check. 

Ms. FOX. Very few consumers deliberately write a check to 

bounce, whenever they don’t have sufficient money. That tends to 

be something that catches you by surprise when your bank lets 

your debit card— 

Mr. MCHENRY. Sure, unless— 

Ms. FOX. —transaction go through. But there are— 

Mr. MCHENRY. Reclaiming my time, let’s reference the Federal 

Reserve report that is submitted for the record. 

24 

The Federal Reserve report expresses that in States like Georgia 

and North Carolina, there are—the example they use in the report—you have more complaints to the Federal Trade Commission 

about lenders and debt collectors, you have more bounced checks 

in that State, you have higher bankruptcy rates in that State, and 

they don’t allow for payday lending. 

So explain to me how this is a rational argument you’re making. 

Because human nature—there is obviously a need for this type of 

short-term lending. Do you disagree that there is a need for it? 

Ms. FOX. There is a need for small dollar lending. The short term 

is part of the problem. The Federal Reserve report you’re referring 

to is one staff member’s draft report. It’s not an official report from 

the New York Federal Reserve Bank. They looked at aggregate 

data; they did not look at individual consumer experiences. 

For example, during that period of time, there were more complaints from D.C. consumers about debt collection to the Federal 

Trade Commission than there were from Georgia, so the standards 

that he used to try to describe what was going on— 

Mr. MCHENRY. So you just— 

Ms. FOX. —are too— 

Mr. MCHENRY. I’m trying to talk about— 

Ms. FOX. —aggregate. They aren’t a good description. 

Mr. MCHENRY. Okay. 

Ms. FOX. If you look at research done, looking at actual consumers who use payday lending, every one of them shows it is 

harmful. 

Mr. MCHENRY. Okay, great. So you are saying that there is just 

simply—there is a demand for it, but you don’t think it is good for 

consumers to have this option. 

Ms. FOX. We think there’s a demand for small dollar loans that 

are served by credit unions, by credit card cash advances, by traditional small loan companies that make installment loans to consumers. This market can be served and is being served— 

Mr. MCHENRY. What if you don’t have a credit card? 

Ms. FOX. —and a third of the people live in a State where payday lending is not permitted, and they get small dollar loans. 

Mr. MCHENRY. Sure, and you know what they do? They travel 

across State lines in North Carolina. I have seen the effects in 

North Carolina— 

Ms. FOX. In New England— 

Mr. MCHENRY. Pardon me? 

Ms. FOX. In New England— 

Mr. MCHENRY. Well, I’m not from New England. I’m giving you 

the North Carolina experience— 

Ms. FOX. Yes. 

Mr. MCHENRY. —and, you know, you have mentioned that basically, in North Carolina, we haven’t suffered based on a prohibition 

of payday loans. 

Ms. FOX. That’s what the banking commissioner’s survey of 

North Carolina consumers found, that they were—they didn’t miss 

it. They were glad to see it go. 

Mr. MCHENRY. Certainly, in terms of who they deal with, and 

the regulated—you are saying that one person’s opinion is invalid 

from the Federal Reserve, which I think the American people know 

25 

is pretty valid, and another person’s is very valid, based on your 

political perspective. 

Ms. FOX. Well, the North Carolina bank— 

Mr. MCHENRY. Mr. Flores? 

Ms. FOX. —had an— 

Mr. MCHENRY. Let me actually go on to someone else, Ms. Fox. 

I don’t have much time, and we obviously know your perspective 

on this, that you just—you understand the demand, but you don’t 

think it’s possible or necessary to fill that demand with regulated 

means. 

Mr. Flores, you do a lot of work on this, and the question is, do 

you have an opinion on whether consumers are better off, or not 

better off, to have a regulated payday alternative? 

Mr. FLORES. Sir, they’re much better off. It’s a $40 billion demand annually— 

Mr. MCHENRY. Why are they better off? 

Mr. FLORES. —for this type of credit. That $40 billion would have 

to be met with other vehicles. And right now, that other vehicle is 

basically an overdraft or a credit card advance. 

A credit card advance is very expensive. You have an advance fee 

of 3 to 5 percent. And in these cases, you are going to have APRs 

well north of 20 percent. Most people will make minimum payments, and they will never get out from under it, versus a payday 

loan, which they fully plan to pay off in that 1-week or 2-week period. 

Mr. MCHENRY. Well, thank you, Mr. Flores. And what I would 

say is you’re missing a third option, which is the illegal option. And 

Mr. Chairman, if you will give me 15 additional seconds. 

There is a third option, which is the illegal option, which—instead of charging a high interest rate, the experience I have had 

with individuals I knew and worked with in my family’s business, 

that they could get lending, and it was dollar-for-dollar lending. If 

you wanted $20, you paid $20. 

Mr. ELLISON. The gentleman’s time has expired. 

Mr. MCHENRY. And if you didn’t pay, you got your legs broken. 

Mr. ELLISON. The gentleman’s time— 

Mr. MCHENRY. That’s the illegal option, and that’s unfortunately 

what Ms. Fox is really trying to put people into. 

Mr. ELLISON. The gentleman’s time has expired. 

The Chair will recognize the gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Let me begin by going over a little bit here. First, let me deal 

with the State’s preemption issue. It certainly is the intent of this 

legislation not to interfere with those States who already have laws 

on the books of whatever nature they may be. And I think when 

we get to my colleague from New York, Mrs. McCarthy, she’s going 

to go into a little more detail with this, because there are varying 

understandings of that. 

But certainly this legislation is a targeted piece of legislation 

that targets 23 States that do not have any regulatory reform on 

payday lenders. It is also an effort by this body to get a bill passed 

that will provide some major protections for consumers and our 

constituents who want this service. Whether we may want it, or 

26 

may use it or not, there is a niche and a market that is there that 

consumers want and need. 

Let me just very briefly—Ms. Fox, are you aware that this legislation caps interest rates and fees for short-term loans at a combined 15 percent, and at the same time gives borrowers liberal, 

very liberal, repayment loans that are structured in a way that will 

not take them into this cycle of unending debt? 

Ms. FOX. I’m glad you have asked about that, because there are 

some States that have tried using an extended repayment plan, 

and it hasn’t worked to prevent payday loans from being a debt 

trap. 

In those States, they have the same average number of loans for 

customers as the rest of the States that authorize payday lending. 

And that’s because the payday lender whose profit is based on getting consumers to renew loans one after another, has no incentive 

to encourage people to use the repayment plan. You have to ask 

for it. 

So in the States that have tried it, only 2 to 3 percent of the eligible loans end up going into the repayment plan. We have the 

same problem with the renewal ban. It prohibits renewals. Well, all 

but five of the States that permit payday lending prohibit renewals 

in one way or the other. 

But consumers just come in on payday, pay off the loan, and now 

they don’t have enough money to make it for the rest of the pay 

cycle. So they write a new check, they take out a new loan. It’s not 

counted as a renewal, it’s a back-to-back loan. And that’s how people get trapped in the debt trap. 

Mr. SCOTT. All right. But what I’m saying is you support the 

measure that we have in the bill, or do you not support in this legislation, our language that will regulate and will impose balanced 

criterion on these loans, which specifically address the cycle of debt 

and excessive interest rates that result from continually refinancing or rolling over these loans? That is the crucible of the 

issue— 

Ms. FOX. Right. 

Mr. SCOTT. —that this bill addresses and stops, which is the 

most egregious point in payday lending. 

Ms. FOX. We think this bill authorizes egregious lending. It authorizes writing unfunded checks to get loans. It authorizes a payback term of as little as 2 days. It authorizes back-to-back loans, 

one right after the other. 

Mr. SCOTT. All right. 

Ms. FOX. And it does not serve as your intended consumer protection. 

Mr. SCOTT. All right. Well do you believe, Ms. Fox, that for these 

23 States that have nothing, this bill will offer some help, and a 

regulated form is needed? 

Ms. FOX. It doesn’t offer much of a reduction in the rates. For 

example, in California, payday loans cost— 

Mr. SCOTT. But my question is—and I agree. We have to fashion 

measures to try to respond to constituents’ needs, and measures 

that we can develop the coalitions and alliances of thought, that we 

can get through this body. 

Ms. FOX. Well, we— 

27 

Mr. SCOTT. And so the point I’m saying is, would not these 23 

States be better off with this effort of bringing some relief and 

some reform into regulatory reform? Just yes or no, that’s all I 

wanted to— 

Ms. FOX. No, they would not be better off, because of all the loopholes in the bill. 

Mr. SCOTT. All right. 

Ms. Guzman, let me ask you this, because I only have one question. I understand, I believe, you have used payday lending, is that 

correct? 

Ms. GUZMAN. Yes, I have. 

Mr. SCOTT. So I think that your comments will be very important. May I just ask— 

Mr. ELLISON. The gentleman’s time has expired. 

Mr. SCOTT. All right. 

Mr. ELLISON. Mr. Marchant from Texas. 

Mr. MARCHANT. Thank you. First of all, my position on this, after 

serving 18 years in the State legislature, and dealing with this 

issue every single session for 18 years, is that this is an issue that 

very much deserves to be debated and decided in the State houses. 

I do not believe this is a Federal issue. I’m with Mr. Watts on 

this issue. I do not believe that you can write legislation on this 

kind of a subject at the Federal level, and try to force it down on 

States who have clearly had the opportunity. 

Probably every year they meet, these 23 States have had the opportunity to take this subject up. So that—I’m not for the legislation simply because of that. 

As far as trying to set Federal lending limits and Federal—and 

actually have the Federal Government set rates on a private transaction, a legal private transaction, that also is something that I’m 

not interested in. 

Perhaps there’s some venue—because there is Federal insurance 

on the banks, there may be some case to be made for preemptive 

rights of the Federal Government to go down and talk—and pass 

ordinances and laws for banks. 

In Texas, we were the last State in the Union to have branch 

banking, because we felt like it was a States’ rights issue. We were 

the last State to pass home equity loans, because we felt like it was 

a States’ rights issue. 

So I’m very much a States’ rights issue guy on this here. I do 

not believe that the Federal Government can effectively regulate 

this industry. 

I represent a district that—throughout my career, I always felt 

like the payday lending industry was an industry that I would see 

in districts where there were a lot of working class people, or a lot 

of people who live from paycheck-to-paycheck. 

But my district is a suburban district near Dallas. And if you 

walk into one of the payday lenders in my district, you’re going to 

find housewives, you’re going to find school teachers, you’re going 

to find factory workers, you’re going to find people who work for 

the city, and you’re going to find people that I don’t think that we 

have given enough credit to. 

These are people who can add and subtract and multiply. They 

know that bouncing the check at the bank is not a good thing. They 

28 

know that it is costlier to go to the bank and bounce a check, than 

it is to go to the payday lender. They know that it could hurt their 

credit rating if they make a credit card payment late. They know 

that the credit card late payment is probably going to be more expensive than the payday lending rate. 

So I, like the testimony the gentleman from Louisiana—we think 

that our system in Texas is working very well. I would like to give 

the other 23 States that have decided to not do anything about it, 

or still haven’t decided what kind of laws they want to make, to 

continue to have that—those rights, and to continue with that. 

For that reason, I am going to be against the bill, and thank you, 

Mr. Chairman. 

Mr. ELLISON. The gentleman yields back. The Chair will recognize the gentlelady from New York, Mrs. McCarthy. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman, I appreciate it, and I appreciate this hearing. 

First let me say, and join my colleagues from North Carolina and 

Georgia—that, you know, in the State of New York, we do not have 

payday lending, but we do. It’s just a different form of what you’re 

talking about. What is defined and regulated by the State as a payday loan, they have operations that offer similar products, but don’t 

meet all the principles of a payday loan, so they’re unregulated, 

and that is a grave concern. 

And I think that’s what, you know, we’re trying to get at. Now 

I know CFSA has best practices for the payday advance industry. 

A lot of that has been put into this bill. The only difference will 

be that within this bill, there will be teeth, where we can actually—do regulate that, if that’s what is going to come down on the 

road. 

So to say that, you know, some of the States don’t have any form 

of payday, I find not true. But the other thing is too, in my area 

where we have ‘‘payday lenders,’’ we don’t have any banks. 

So where are those people who live in those particular areas— 

there is no banking. The other thing is, in almost all the banks I 

know, you have to have an account to go in and cash a check. 

So again, we’re finding problems with that. You know, if it’s a 

paycheck from a—whatever the job is, and they have an account 

there, maybe the bank will cash that check, but otherwise, you 

can’t cash a check there. 

So I guess my feeling is that—I guess I want to go to Mrs. Fox. 

It’s my understanding that the Consumer Financial Services Association of America has a list of best practices that their members 

must follow, and that the legislation reforming payday loans, H.R. 

1214, puts a cap on interest rates that is lower than the fees allowed, again, in 23 States that allow payday lending. 

Could you explain how a payday loan could be worse than the 

consequences of not being able to obtain a short-term loan from a 

financial institute, forcing an individual to bounce a check, as we 

have heard from many of my colleagues? And I think that’s something that we have to take into consideration. 

There is no one here—Republican or Democrat—who wants to 

condone anyone who is ripping off any of our constituents, nobody 

does. But the fact of life is that we need to have people—when they 

29 

want to cash their check, or have a short-term loan, they need to 

have a place to go. 

To me, it’s almost like an ATM machine. Here are your prices. 

If you want to borrow or take money out with your credit card, 

you’re going to pay an upfront fee. And if we can do that with some 

sort of regulation, I think that it’s better than what it is today. 

Ms. FOX. In New York, your 25 percent criminal usury cap prohibits payday lending, and although you have check cashing outlets 

where people pay a fee to turn a paper check into cash, that’s not 

a credit transaction. I know you do have refund anticipation loans 

that are expensive in New York, because those are offered by 

banks, and New York can’t regulate those interest rates. 

But there are other options. Everybody who gets a payday loan 

is a bank customer. You have to have a checking account open in 

order to write a check. You can apply to your bank for real overdraft protection at a lower cost. A lot of credit unions offer low-cost, 

small loans to their members. And in Pennsylvania, the treasurer 

of the State puts deposits into credit unions to encourage them to 

make very-low-cost loans available in Pennsylvania. There are 

other options. 

Mrs. MCCARTHY OF NEW YORK. I agree with you on that. But I’m 

saying to you, I know in certain districts—part of my district, they 

don’t have a credit union. They don’t have a bank. Where are they 

supposed to go? They also probably don’t have a car. So where do 

they go? 

Ms. FOX. Most people, when they have a $100 or $200 shortfall, 

turn to their family and friends. They deal with whatever the credit emergency is. They call the utility company and ask for extended 

payments. They ask the landlord for more time. 

Mrs. MCCARTHY OF NEW YORK. Ms. Fox, I’m not trying to give 

you— 

Ms. FOX. Paying 400 percent interest doesn’t help. 

Mrs. MCCARTHY OF NEW YORK. Ms. Fox, I’m not trying to give 

you a hard time, but we’re talking about people who are probably 

on the very lower end of income. And most likely their family members are not going to have money. 

But with that—I saw that—Mr. Flores, you wanted to say something? 

Mr. FLORES. Yes, I would like to respond to that. When you go 

to the bank to apply for a traditional overdraft line of credit, which 

would be akin to a credit card, many banks that I have dealt with, 

who have actually formalized these overdraft programs, have limited or eliminated offering the traditional overdraft line of credit 

because there is very little revenue associated with that product. 

The revenue is all in this overdraft protection program. 

So I think it’s very difficult to say that people have the option 

to go in and get this. Because banks have looked at the profitability 

of all these products, and given the interest margin squeeze they 

are all facing right now, they are looking for the most profitable 

products they can offer. 

Mrs. MCCARTHY OF NEW YORK. Thank you. With that, I yield 

back my time. 

Chairman GUTIERREZ. Thank you. We’re going to go to him, I 

just want to alert the members that when we begin these hearings, 

30 

there are 10 minutes per side, by unanimous consent, for opening 

statements. And if people want time, they will be allotted that time 

on the basis of their seniority in the committee, so that everybody 

has ample time to be able—the gentleman on my right takes care 

of that side, and sometimes people don’t get to speak. 

I assure you when I was here 17 years ago, and I was way down 

there on the fourth row, I would have hoped these kinds of rules 

would have been in place. 

Mr. Cleaver, you are recognized for 5 minutes. 

Mr. CLEAVER. Mr. Chairman, this is one of those times—I know 

people assume that we come here with all—with the positions already in concrete, which is not true for me, certainly not today. 

Most of the assumptions I came in here with have dramatically 

changed, although I am not a fan of payday lending, not at all. 

But I am concerned about—and I’m not sure anyone has addressed, a way in which we can provide necessary services to the 

unbanked. And it is—the unbanked represents an untapped market, and I’m not—I’m a federalist, so I’m not interested in supplanting Federal legislation—of supplanting State legislation with 

Federal legislation. 

And so I’m really struggling with exactly where I am. The only 

thing I know for sure is that I don’t like payday lending, because 

I think some of the practices, frankly—when you have fees of 300 

percent, as happens in some places, that can’t possibly be good. But 

on the other hand, what do we do to provide service to the 

unbanked? Can anybody—yes, sir, Mr. Flores? 

Mr. FLORES. Mr. Cleaver, I have worked with clients in the past 

who have tried to address the unbanked situation. And the key to 

the unbanked is that the first product they need is the checking 

account. 

And one of the strategies that has been employed is what is 

called a checkless checking account, where direct deposit is made 

to eliminate any potential fraud on the deposit side, or returned 

items on the deposit side. And no checks are permitted, only the 

debit card for ATM withdrawals and point-of-sale transactions, 

which would eliminate any potential for overdrawing this type of 

account. Once somebody establishes that, and over a period of time 

has a track record, then they go that next step in developing the 

appropriate credit— 

Mr. CLEAVER. Well, the problem is—thank you. I hate to cut you 

off, except my time is running out. 

And the problem with that is, when you go into the urban core, 

there is no gradualization, because there is no bank. You know— 

I mean, you can ride around in the urban core for miles and miles, 

and not come across a bank, or a grocery store, for that matter. But 

so—Ms. Guzman? 

Ms. GUZMAN. Congressman, let me say that going back to my 

statement of an evil, but a necessary evil. When we deal with evil, 

we try to minimize the impact. And I think this legislation, and 

legislation like it that permits payday lending establishments, however regulates or caps the fees to protect the consumer, is the only 

answer. 

Addressing Mrs. Fox, many of my neighbors do not have family 

members they can turn to for a payday lender situation. We have 

31 

a transient population right now with the economy, where people 

move from community to community, State to State to find jobs. 

Many of them are first generation Americans, native born Americans. They do not have a family support base or safety net here. 

So as I stated, payday lenders, there is a market for them. There 

is a need for them, and I would just be very grateful if we— 

Mr. CLEAVER. Yes, but the—where I’m trying to go—thank you. 

Where I’m trying to go is, and maybe I’m inarticulate— 

Ms. GUZMAN. What is the answer? 

Mr. CLEAVER. What happens to the people who live in areas 

where there are no banks? 

Ms. FOX. There are—may I? 

Mr. CLEAVER. Ms. Fox? 

Ms. FOX. There is a program that has been launched in a lot of 

large cities. It is called ‘‘Bank On,’’ where the mayors and local 

civic leaders are working with banks to encourage them to provide 

the basic entry level banking services that the communities that 

you’re describing need. 

My organization, Consumer Federation of America, is working on 

America Saves campaigns across the country, to try to help lowand moderate-income consumers become savers. We have new data 

out from the Federal Reserve that compares people who use payday 

loans with people who don’t. And the folks who don’t use them are 

twice as likely to be savers than the folks who end up at a payday 

loan outlet. 

So there are creative programs being worked on to bank the 

unbanked. The problem is, once you get these consumers banked, 

now they are the prime market for payday lenders, since having a 

checking account is a prerequisite, but they don’t have enough 

money to be able to pay the loan back all at one time on their next 

payday. 

Chairman GUTIERREZ. Yes. Thank you very much. Your time has 

expired. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. Ten seconds to go out of order. Unanimous 

consent—I would like to ask Mr. McCullen a question before we go 

any further. Hearing no objection, it is so ordered. 

I have your statement here, the last paragraph: 

‘‘I respectfully request that you defeat this bill in its current 

form, or alter it to mirror the Louisiana law, which allows $20— 

which allows $.20 and a dollar—a dollar plus’’—per dollar, sorry— 

‘‘and a documentation fee.’’ 

So you’re against the bill in its current form, is that correct? 

Mr. MCCULLEN. Yes, sir. 

Chairman GUTIERREZ. Thank you. 

The gentlelady, Ms. Speier, is recognized for 5 minutes. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Ms. Guzman, I have a question for you. If you could get a payday 

loan for 36 percent instead of 300 percent, would you like that? 

So would you support a bill that had an interest cap of 36 percent, instead of 300 percent? 

Ms. GUZMAN. I would support any loan that would— 

Ms. SPEIER. Would you put your microphone on, please? 

32 

Ms. GUZMAN. I apologize. I would support anything that would 

minimize the negative impact to consumers or my neighbors. 

Ms. SPEIER. So there—yes, Mr. Flores? 

Mr. FLORES. I would like to— 

Ms. SPEIER. Would you support that? 

Mr. FLORES. Well, it sounds good. But the issue is, when you do 

a 36 percent annual percentage rate, that means it boils down to 

a $1.38 fee for a $100.00 advance. And no one can—there’s not a 

business model that will allow anyone to even cover their costs and 

offer that product. 

So while yes, it sounds good, and it is—36 percent on a traditional installment loan makes sense, for this type of fee product, 

it does not make sense, because no one—you would put the industry out of business, and you have— 

Ms. SPEIER. Well, maybe—maybe some of us think that the industry has overstayed its welcome. 

Mr. FLORES. Well, yes, ma’am, but— 

Ms. SPEIER. That’s—Mr. Flores, that’s all I have to ask for you. 

It appears that the payday lending industry is losing some of its 

momentum. In fact, there hasn’t been an initiative that they 

brought before a State since 2005, that has actually passed. Because the people in our communities recognize that 300 percent interest rate is not a good interest rate. And in D.C., as I understand 

it, it has been prohibited—payday loans are now prohibited, as is 

they are in New York and other places. 

And I have to believe, that in huge communities like that, where 

there are a high percentage of low-income people, they are finding 

other ways to get credit when they need it. 

The question I have for you, Ms. Fox, is the following: What are 

the loopholes in this bill? 

Ms. FOX. The bill defines a covered payday loan as only closed 

end, so it leaves out all the payday lenders who have turned their 

product into an open-end product. For example, in Virginia, Advance America makes open-end loans—same cost structure, same 

term for the loan. It’s just they called it open end. It would not be 

subject to this bill. 

Any loan that was for longer than the 90-day definition, would 

not be covered by this bill. And payday lenders have already 

changed the term of their loans, in order to get around that kind 

of definition as well. 

We are also concerned that the credit services organization 

model, which is used widely in Texas—Texas has never passed a 

payday loan industry bill to allow payday lending. The Texas Finance Commission rules would permit it under their regular small 

loan law, but most lenders in Texas call themselves credit services 

organizations, and charge a high fee for arranging a loan with 

some third party lender. It’s not clear to me that they would be 

subject. 

So we have a bill that would leave out almost all the payday 

lending in Illinois, probably all of it in Texas, a big chunk of it in 

Virginia, and it would be very easy for lenders in 10 of the 23 

States that permit higher than the 390 percent cap in this bill, to 

just change their product into an installment product, because 

there’s no rate cap on installment lending. 

33 

So it would be very easy to get around the definitions in this bill, 

and keep right on charging 500, 600 percent, without violating this 

bill. 

Ms. SPEIER. So what would improve the bill? 

Ms. FOX. It would improve the bill to prohibit holding personal 

checks as security for the loan, to make these loans on the basis 

of a contract. 

Ms. SPEIER. Let me ask you a question on that. It seems to me 

almost illegal, because you’re not supposed to provide a check if 

you don’t have sufficient funds. 

Ms. FOX. You would think so, wouldn’t you? 

Ms. SPEIER. So you are basically—they are basically asking the 

person to conduct themselves in an illegal manner by offering up 

that check, that they don’t have sufficient funds to use. 

Ms. FOX. That’s true. And in some States, the payday loan law 

has to exempt these customers from being subject to the criminal 

bad check law, because otherwise they would be. 

But the lender knows you don’t have money in the bank when 

they take the check. But they hold it, and that adds costs for consumers. In Virginia, people paid, in 2007, about $5 million to their 

own banks in bounced check fees, because their payday loan checks 

were returned. 

Ms. SPEIER. Okay, so that would improve the bill. What else 

would improve the bill? 

Ms. FOX. A longer loan repayment term. If you gave people 5 months to repay your payday loan as structured here, at $15 per 

hundred. That gets it down to 36 percent APR. We know from the 

chart I included in my testimony, that the typical family making 

$35,000 a year cannot pay all of this back out of one paycheck. 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

Ms. SPEIER. Thank you. 

Chairman GUTIERREZ. Congresswoman Maxine Waters from 

California. 

Ms. WATERS. Thank you very much. I’m going to yield to the 

gentlelady from California. I just came in. Her line of questioning 

is exactly what I looked forward to doing, so Ms. Speier, would you 

continue your line of questioning, please? 

Ms. SPEIER. Thank you. 

So we had so far established that if you would not require them 

to hold a blank check, that would be an improvement to the bill. 

If you could provide within this bill a longer repayment period, that 

would improve the bill. 

What else would you— 

Ms. FOX. And a reasonable small loan rate cap. Competition does 

not drive down the cost of payday lending. You may have a payday 

lender on every corner, but they are all typically charging the legal 

rate. It takes a rate cap to bring down the costs of loans to consumers who have little power in the market. 

And the traditional small loan rate cap of 36 percent is a reform 

that consumers say they want to have. In polling that was released 

just this last week, 70 percent of Americans want a rate cap of 36 

percent or less to protect consumers from rate gouging. And that’s 

the rate cap that was upheld in voting at the polls in both Ohio 

and Arizona last fall. 

34 

Consumers don’t think that creditors should be allowed to charge 

400 percent. 

Ms. SPEIER. Ms. Fox, just to point out to you, when I introduced 

the bill that would create a usury rate of 36 percent, I had people 

in my district calling me saying, ‘‘That’s too high,’’ so they would 

find this particular conversation particularly interesting, I think. I 

yield back. 

Chairman GUTIERREZ. The gentlelady yields back. 

Mr. Paulsen? 

Ms. WATERS. The gentlelady is yielding back her time to me. Let 

me just say, Mr. Chairman, that the payday lending has always 

been a real concern of mine. And you’re right, I happen to have a 

portion of my district where we have a lot of lenders, and the argument is made that, you know, people depend on this kind of lending. But I just think that 300 or 400 percent is way too high. 

Let me tell you what I began to think about payday lending. We 

have been dealing with subprime loans, and we refer to many of 

the deals as exotic lending, where we had Alt-A loans, that they 

didn’t do verification on employment. 

We had adjustable rate loans that were just outrageous in the 

amount of money that it costs the taxpayer when they reset with 

these high margins, and on and on and on. And we’re calling for 

regulation, and we want tighter regulation. 

The same thing is going on here. We have products that are injurious to our consumers, and we need to crack down on this. Just 

as we’re looking at the subprime loans, and the mess that was created, we have a problem here with people making very little 

money, who will never be able to get out from under this kind of 

debt, unless we do something to crack down. Now this has been 

going on for a long time. 

And so, Mr. Chairman, just let me say that no matter what the 

intent is, the fact of the matter is we have to resist any attempt 

to make it look as if we are cracking down, when in fact we are 

opening the door for more abuse. 

And I will yield back the balance of my time. 

Chairman GUTIERREZ. The gentlelady yields back her time. 

Mr. Paulsen, you are recognized for 5 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman. And I know a lot of the 

questions I had have already been asked. But I wanted to ask Mr. 

McCullen first, perhaps, how would the legislation, H.R. 1214, really impact your business? If you could just describe how the legislation would impact what you do. 

Mr. MCCULLEN. The legislation that’s being discussed here today, 

if it had been in place in Louisiana last year, I would have ended 

in the negative. That’s why I’m here not to support this bill. 

I ask in my testimony that you implement the Louisiana bill, because I am listening to all these different things being said here. 

We don’t have these problems in Louisiana, because it’s against the 

law. We had 24 complaints last year, and we have over 4 million 

transactions. 

We have a very tight, succinct bill that we’re able to operate 

under, and it protects the consumers. So that is why I was against 

this bill. 

35 

Mr. PAULSEN. I’m just curious, Mr. McCullen, then, I mean, who 

would really benefit from this law if that’s the case? Is there another product that’s similar to yours that you offer, and I had mentioned this in my opening statement, but, you know, on a widespread basis, is there any other product that’s offered that really 

substantially is available at a lower cost for people? 

Mr. MCCULLEN. Not to my knowledge, no. 

Mr. PAULSEN. And coming from Minnesota, Mr. Chairman, it is 

the case where I have talked to people in this industry, too, that 

their average interest rate that they’ll charge is only 91⁄2 percent, 

and so a very reasonable level. Ms. Fox had mentioned earlier her 

concern about triple digit APRs. And I’m just curious, what do you 

think of a 99 percent APR, Ms. Fox? 

Ms. FOX. It’s still high. It sure beats 520 percent, which is what 

they can charge in Louisiana for a single payment loan. We think 

that the traditional small loan rate cap in States has been around 

36 percent. It provides for loans to consumers who don’t have a 

perfect credit rating under an affordable repayment schedule. And 

we think that would be more beneficial than what’s being proposed 

here. 

Mr. PAULSEN. Well, and I think it’s also important to point out 

that it would be very beneficial for consumers down the road to not 

necessarily rely on the description of an APR. I don’t think consumers understand what APR means, necessarily, and just regulating not having that triple digit APR, that is going to be much 

more easier for consumers if they understand what real fees are. 

We have seen that in the credit card industry. 

Mr. McCullen, do you have a comment on that? 

Mr. MCCULLEN. I appreciate that comment, because I wanted to 

bring that to the table. Most Americans do not understand APR. 

I have lots of friends of mine who are personal friends of mine, 

they do not understand what we do, and how we do it. When I explain it to them, they understand that this is a flat fee. 

And I also want to make a comment about APR. The American 

Banking Association testimony that was before the subcommittee 

on March 19th, said with regard to applying APR to overdraft fees, 

and other short-term credit product, ‘‘Any time an annual percentage rate is calculated for a term of less than a year, the inclusion 

of a fixed fee, even a modest one, will distort and overstate the 

APR. The shorter the repayment period, the greater the APR will 

appear in instances where there is a fixed fee. This means that the 

sooner the consumer repays, the greater the calculated APR, a difficult concept to explain to consumers, as it appears they are paying—that paying earlier actually increased the cost of credit.’’ 

Mr. PAULSEN. Well, and Mr. Chairman, it just points out, I think 

there are some States that have done some good things, and have 

some good models. And Minnesota and Louisiana might be another 

case too, and I hope we consider that as the legislation moves forward. Thank you. I yield back. 

Chairman GUTIERREZ. Thank you. 

Mr. Sherman, you are recognized for 5 minutes. 

Mr. SHERMAN. Thank you. I’m a bit confused about using APR 

as a way to determine the fairness of the fee. 

36 

Ms. Fox, I was once at my bank an hour before it opened. Usually I would go inside to get a couple hundred bucks out of my account, but I wanted the money an hour sooner than I could get because, like, they were closed. And so I went to the machine. I 

paid—my bank was good. They only charged me a $1 fee to get my 

$200 an hour early, $1 to get my $200 an hour early. 

Now that’s 186,000 percent APR. Am I an idiot for paying 186,000 percent APR to pay that $1 fee just for an hour? 

Ms. FOX. Was the $1 fee to borrow the money, or just a fee for 

accessing it through the ATM rather than in person? 

Mr. SHERMAN. It’s a time value of money. I was going to get the 

same money sooner, whether it constituted a loan for the hour, 

which was then repaid to the bank without further cost or otherwise. I mean, it’s—I got my money an hour early, time value of 

money, 1 hour, $200, it is 186,000 percent APR. 

Ms. FOX. Well, I would never say that a Member of Congress was 

an idiot, so— 

Mr. SHERMAN. Everyone else does. 

Ms. FOX. Well, I would never say that. 

Mr. SHERMAN. Okay. 

Ms. FOX. But I would say— 

Mr. SHERMAN. Should that transaction be banned because it’s 

186,000 percent APR? 

Ms. FOX. Well, that’s not the product we’re talking about today. 

Mr. SHERMAN. I’m asking you a question. 

Ms. FOX. Okay. 

Mr. SHERMAN. You don’t get to confine your responses just to 

what we’re talking about today. 

Ms. FOX. Truth in Lending has been the law of America for 4 

decades. It requires that credit be quoted with a comparable price, 

so you can compare a 1-month pawn transaction, a 2-week payday 

loan, a 6-month installment loan, and a cash advance on a credit 

card, and that’s the price tag. 

Mr. SHERMAN. But when you are doing things for a short period 

of time, I mean— 

Ms. FOX. That’s right. 

Mr. SHERMAN. —if one payday lender charges $30 to use the money for 2 weeks, and another one charges $40 to use the money 

for 3 weeks, you don’t necessarily say that the higher fee is the better deal. Time value of money is something I understand, I’m a 

CPA. 

Ms. FOX. Yes. 

Mr. SHERMAN. I also understand it just doesn’t make any sense 

to evaluate a fee like transaction. 

Ms. FOX. Well, we disagree. 

Mr. SHERMAN. Okay. The other point I’ll make is, I deal with my 

constituents. They know I’m a CPA. They ask me all kinds—the 

only financial transaction they do understand is they payday loan. 

Ms. FOX. Well— 

Mr. SHERMAN. None of them understand just about anything 

else, but you say, okay, you use your credit card, and you pay most 

of it off, and then you use it some more. How much is that going 

to cost you? They have no idea. You use your overdraft protection. 

How much is that going to cost? Nobody knows. 

37 

Ms. FOX. Well, if this subcommittee would enact Representative 

Maloney’s overdraft bill, consumers would get Truth in Lending 

cost disclosures for those loans as well, and we think that would 

have a great benefit on the banks. 

Mr. SHERMAN. Well, what I’m questioning is whether Truth in 

Lending makes any sense at all for loans of less than a month or 

2 months. What you think of as great information, to my constituents is gobbledy-gook or misleading. 

Ms. FOX. Well, requiring loans to be repaid in less than several 

months also doesn’t make very good sense for consumers in the income bracket who use payday loans. 

Mr. SHERMAN. Some people only want to—I see my home girl 

from the San Gabriel valley, where I grew up, Aztecs— 

Ms. GUZMAN. Yay. 

Mr. SHERMAN. —and I mean, were there occasions where you 

needed the money for only a month, or did you always have a need 

for the money for 3 months or 4 months, or longer? 

Ms. GUZMAN. No, on that particular occasion that I discussed 

earlier, I did only need it actually for 30 days. What I did was I 

paid it back, because I’m not allowed to rollover, and literally borrowed it back at that moment, again, paying another fee, because 

I couldn’t pay it back for 30 days. But, you know, I was able to pay 

it back. 

Mr. SHERMAN. But you only held the money for a grand total of 

30 days? 

Ms. GUZMAN. Yes. 

Mr. SHERMAN. Okay. So if we forced you to take the money for 

60 days, but we charged you just a little bit more, would that help 

you? 

Ms. GUZMAN. Well, it would at least give me the option of not 

having to pay it back in 2 weeks. I’m just saying in my—Congressman, in my experience, everyone’s situation is different. I do have 

very well-intended neighbors who would need the loan— 

Chairman GUTIERREZ. The gentleman’s time has expired. 

Ms. GUZMAN. Oh, I’m sorry. 

Mr. SHERMAN. Okay. I just ask the witness not to tell anybody 

in the San Fernando Valley that I actually grew up in the San Gabriel Valley. I yield back. 

Ms. GUZMAN. My lips are sealed. 

Chairman GUTIERREZ. Yes. We ban rollovers in this particular 

bill, and we give you 90 days to pay the money back, so you 

wouldn’t have had to pay the fee again. 

Mr. Childers is recognized for 5 minutes. 

Mr. CHILDERS. Thank you, Mr. Chairman, and I have been following between votes, and the earlier part of the panel, I want to 

thank you all for being here from my office. And I think this has 

really been touched on today, but I really wanted to address the 

issue, Mr. Chairman, of regulating by the States. And I just want 

to go ahead and say this. 

I am from Mississippi. Mississippi is no different from all the 

other States. We have varying degrees of people in need of various 

amounts of loans and sizes. I come from a State, quite frankly, that 

does a good job of regulating. They do a good job of regulating 

banks, they do a good job of regulating consumer loans, and they 

38 

do a good job of regulating payday loans, if that’s what it is to be 

called. 

Now at my age, I have survived many errors, let me just say 

that. And there are times that I needed a little bit of money, and 

there were times that I needed a lot of money. And I’m not so sure 

that this is really the avenue for us to take on this. And I will say 

this. I’ll use my own State as an example there. 

It is my belief that customer John Doe will go to the place where 

he can borrow money—or Jane Doe—will go to the place they can 

borrow money, for the least amount. I believe that. I have done 

that in my life. 

There are times that my own hometown banker probably charged 

me more than my neighbor, but there were a lot of factors. Maybe 

my credit wasn’t as good as that time. Maybe he thought I already 

owed too much money. I just—I wanted to make that just as a 

statement really and—to the panel. And I understand each of your 

interests, and I appreciate that. I read what you delivered to us 

and I have listened to you while in my office, in between these 

votes today. 

But my State does a good job, and I really have nothing but compliments for my own State. And in my State, the payday loan companies seem to be the target, if you will, of maybe this discussion 

today. The people there—and don’t get me wrong, I’m certain that 

there have been instances where people have been aggrieved. It is 

like any industry. There are always some who have been wronged, 

or believe to have been wronged. 

By the same token, I saw this industry in my State, and regardless of what I personally think about the industry, I will say this. 

They stepped up and worked with the State of Mississippi to regulate themselves to a degree, or to accept regulation, so they could 

stay in business. 

I’m anxious—you know, I welcome any comment from the panel 

back, but I just wanted to speak, I guess, on behalf of State regulation. 

Mr. FLORES. Congressman, I was just looking at my study, and 

for the State of Mississippi, since you do allow payday lending— 

Chairman GUTIERREZ. Mr. Flores, could you put your microphone 

on? 

Mr. FLORES. I’m sorry. The State of Mississippi, the average con- sumer who has a checking account, pays $163 in overdraft in NSF 

charges, compared to the national average of over $300. So again, 

according to my opening statement, is there a direct correlation? I 

don’t think there’s enough data yet, but there’s certainly an indication that we ought to look at it in more detail. 

And so the consumers in your State are paying less in overdraft 

charges than consumers in many other States. 

Mr. CHILDERS. I would agree there probably isn’t enough data to 

say that is it, but it is—if it’s a fact, it just is what it is. 

Thank you, Mr. Chairman. 

Chairman GUTIERREZ. You’re welcome. 

A couple of quick questions to Ms. Fox. You said—is it your testimony that competition will not drive down the price of payday 

loans? 

Ms. FOX. It has not, no. 

39 

Chairman GUTIERREZ. Okay. So supply and demand works everywhere else except the payday industry. 

Ms. FOX. That’s right. 

Chairman GUTIERREZ. I just wanted to make sure that was your 

testimony. I can tell where you’re at. And then your testimony is 

that the bill would force payday lenders to change their product. 

Ms. FOX. It would give them an incentive to change their product. 

Chairman GUTIERREZ. So while it has nothing to do with the 

driving down the price, it will change their behavior in terms of 

changing their product to installment loans. 

Ms. FOX. From past experience, that is likely to happen. 

Chairman GUTIERREZ. From past experience. So it does have on 

one, but not on the other. 

Everyone has had an opportunity. 

I would ask unanimous consent that a letter supporting the goals 

of this legislation from the National Association of Federal Credit 

Unions be entered into the record. Hearing no objection, it is so ordered. 

I want to thank the witnesses and the members for their participation in this hearing. The Chair notes that some members may 

have additional questions for the witnesses, which they may wish 

to submit in writing. Therefore, without objection, the hearing 

record will remain open for 30 days for members to submit written 

questions to the witnesses, and to place their responses in the 

record. 

This subcommittee hearing is now adjourned. 

[Whereupon, at 4:56 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

April 2, 2009 

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