New Legislation Takes on Georgia Payday Loans
Inside Subprime: Feb 18, 2019
By Lindsay Frankel
Congressman David Scott (GA-13) has brought new legislation intended to reduce use of Georgia payday loans and other alternative financial services. The Improving Access to Traditional Banking Act of 2019 would establish an office within the Consumer Financial Protection Bureau (CFPB) designed to research and identify ways to meet the needs of “under-banked, un-banked, and underserved” communities.
“Far too often, both in the 13th District of Georgia and across America, people are using financial services from outside the traditional banking system,” said Congressman Scott. “This means that those who already have lower incomes often pay more in fees and penalties, even for simple services like cashing a check. This simply is not workable, especially for the African-American families who are disproportionately affected.”
Payday loan firms target the most vulnerable Americans, disproportionately impacting minorities and people with disabilities. Payday loan storefronts are concentrated in low-income neighborhoods and around military bases. Low-income Americans with poor credit often turn to payday loans, title loans, and pawn shop loans when they find themselves in a financial bind. But these alternative financial services carry exorbitant interest rates and fees that perpetuate financial distress for many Americans.
Scott added, “This bill, the Improving Access to Traditional Banking Act, moves us toward greater economic inclusion. The CFPB, as the agency devoted to helping consumers safely use the financial system, is the perfect place for this new office. Their research will help ensure everyone can access our banking system and get the services they need.”
A 2017 survey by the FDIC found that 6.5 percent of households lacked a bank account. But the rates were higher among lower-income households, black and Hispanic households, younger and less-educated households, disabled households, and households that experienced income volatility. Additionally, more than half of African American households had relied on alternative financial services in the past 12 months.
Under Scott’s legislation, the CFPB would be required to set up an “Office for Under-Banked, Un-Banked, and Underserved Consumers.” The role of this office would be to:
- Research and identify obstacles faced by unbanked and underbanked Americans with regards to retaining relationships with depository institutions
- Outline methods for depository institutions to allow unbanked and underbanked Americans increased access to their services
- Originate strategies to improve financial literacy among underserved populations
- Submit to Congress a biannual report that outlines the CFPB’s policy recommendations to “promote participation in the traditional banking system.”
The CFPB recently announced that it would rollback some of the requirements of the Obama-era rule governing payday loans, which has yet to take effect. This deregulatory move leaves unbanked Americans particularly vulnerable to high-cost payday loans. Congressman Scott’s proposed legislation is an important step in remedying underserved communities’ reliance on alternative financial services.