When Capping An Industry Doesn’t Make It OK

In the environmental world, there is a lot of debate about “cap and trade” – the concept that to control pollution, we should limit the amount of pollutants that can be created, and then auction off the right to produce the pollutant to the highest bidder. This program would not only limit the amount of pollution but would create an incentive for companies to look for alternative ways of producing their products without pollution.

In Congress, Illinois Representative Luis Gutierrez is promoting a different cap: one on payday lending. Sounds like a good thing, right? It might be—except that instead of curbing the excesses of payday lending, this bill provides a way to legitimize the practice.

Payday lending gives people the opportunity to borrow money using their next paycheck as collateral. In turn, the payday lending industry offers interest rates of up to 400% on the loans, leading to a cycle in which people must constantly borrow against their next paycheck to pay off the interest from their current loan. The Gutierrez bill, known as HR 1214, would cap these interest rates – but only at 391%. It would also limit payday loans covered by the bill to those with a term of 91 days, which means that lenders could circumvent the law by offering longer-termed loans.

The National Community Tax Coalition has a series of talking points about this bill that you can read to get more information (or, if you are a Stephen Colbert fan, you can look for his take on the bill in his April 14 segment of “The Word”). There are also a list of things you can do:

1. Sign on your organization on to the NCTC petition - All organizations are welcome, but especially those that run VITA sites in their state. Several bills are listed in the petition, FYI.
2. Reach out to your representatives who are on the relevant committee or who are cosponsoring the bill – in Pennsylvania, Rep. Paul Kanjorski (DEM-PA-11th) and Rep. Jim Gerlach (REP-PA-6th) are on the committee. Rep. Paul Kanjorski is also a cosponsor.
3. Submit your Client Stories - these stories are instrumental in highlighting the need for policy change. Share your stories of clients who have been helped by the EITC and the Child Tax Credit and/or those that have been hurt by RALs.