The Payday Industry's Powerful Friend

This past fall, Lynn DeVault, the head of the trade association representing the country's payday lenders, spoke frankly about what her group was doing to fight federal regulation of her industry.

Her organization, DeVault said, the Community Financial Services Association of America, boosted its federal budget by a factor of four. It increased the number of lobbyists in its employ from 2 to 12. Meanwhile, individual companies were also working K Street in search of lobbyists who could help them fend off anti-payday lending legislation at the federal level.

This week, those efforts seemed to have paid dividends. According to a 2009 study by Citizens for Responsibility and Ethics in Washington (CREW) , the country's payday lenders and check cashers gave more in campaign donations to Senator Richard Shelby (R-Ala.) than any other Republican in Congress: $25,560 in 2008 alone. And it was Sen. Shelby who stood on Tuesday to block three pending amendments to the financial reform package working its way through the Senate, including one introduced by Sen. Kay Hagan (D-N.C.) fiercely opposed by the payday lenders (see my prior post, "The Payday Lenders Confront Their Mortality ").

Shelby, of course, is the top-ranking Republican on the Senate Banking Committee. That's made him the key point person for the Republicans in negotiations with Democrats over financial reform. No fool those payday lenders. The average payday customer takes out between 9 and 13 payday loans per year, depending on whose numbers one believes; under Hagan's proposal, a payday customer would be limited to no more than 6 of these emergency loans per year.

Basically Hagan's amendment could cut the industry's revenues by one-third if not in half.

But maybe it's not fair to imply that Sen. Shelby might be influenced by campaign contributors. He is, after all, from Alabama, a state that has proven particularly hospitable to the payday lending industry -- so much so that a trio of pro-consumer groups -- the National Consumer Law Center, the Consumer Federation of America, and Consumers Union -- gave the state an F in a report released last week that grades every state on how well they protect consumers from excess interest rates.

One example: Alabama's payday policies. The majority of the three dozen or so states that permit these two-week payday advances limit lenders to a fee of $15 on every $100 they loan out. That works out to an interest rate of 391 percent if expressed as an annual percentage rate. In Alabama, though, the law allows a lender to charge $17.50 every two weeks on a $100 loan, which would work out to an APR of 456 percent.