Attorney General Martha Coakley joined 40 attorneys general around the country to urge Congress to oppose a bill that would take away states’ authority to crackdown on abusive payday lenders.
In a joint letter, the attorneys general warned Congressional leaders about what they called the potential negative effects of the Consumer Credit Access, Innovation and Modernization Act, which is designed to establish federal standards for nonbank lenders.
“This proposal would eliminate crucial protections for consumers in Massachusetts and limit our authority to enforce state laws that govern certain financial services companies,” Coakley said in a statement. “I urge Congress to reject this bill and let the states continue to protect consumers from abusive and predatory practices by short term lenders.”
Payday lenders advance short-term loans, typically with high interest rates, on the agreement that they are repaid when the borrower receives his or her next paycheck.
Coakley said the bill, which is before a House subcommittee, would give payday lenders and others, including prepaid card issuers and check cashers, the ability to obtain a federal charter and thus sidestep more stringent state laws.
Groups representing the lenders have testified that they meet a need for the millions of Americans who do not have bank accounts, and who need lending services.
Coakley said the bill prohibits lenders from extending credit to consumers who cannot repay the loans, but it does not establish a standard for determining ability to pay. It also gives exemptions certain loans from disclosure rules.
“By preempting state laws, the proposed legislation would impede state efforts to immediately and directly protect consumers from harm,’’ Coakley said.