Back in November, a bipartisan group of House members introduced legislation that would exempt states from long-awaited federal payday lending rules, as long as they met certain minimum standards.
The legislation now has 24 co-sponsors — 15 Republicans and nine Democrats. Most prominent among them is Rep. Debbie Wasserman Schultz, a Florida Democrat who chairs the Democratic National Committee.
While the bill is not expected to become law, it still sends an implicit message: If the Consumer Financial Protection Bureau goes too far in restricting payday loans, there will be a loud backlash on Capitol Hill, among both Republicans and Democrats.
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The bureau's proposed standards would drive lenders out of short-term, small-dollar lending, just as the OCC's 2013 rules did. This time, however, there will be few, if any, regulated institutions left to fill the void.
October 15 -
The state that forged a middle ground on payday lending serves as both a potential model and a warning sign for the Consumer Financial Protection Bureau.
November 7 -
An expected ballot measure, which is backed by a prominent Democrat and Republican, would serve as a referendum on South Dakota's decades-old decision to deregulate interest rates.
January 2
But over the last few weeks, something unexpected happened.
A left-leaning pressure group, Allied Progress, fixed its focus on members of Congress it sees as insufficiently tough on payday lending. The group is spending close to $100,000 on ads attacking Wasserman Schultz — it has given her the nickname "Debt Trap Debbie" — and promises that she is just its first target.
"There are plenty of members of Congress who are bad on this issue," said Karl Frisch, executive director of Allied Progress.
The group's efforts could have implications far beyond Florida's 23rd Congressional District, where Wasserman Schultz faces an Aug. 30 primary challenge from law professor Tim Canova. That is because strong opposition to payday lending is starting to emerge as a litmus test in Democratic Party politics.
"Loan sharks should feel right at home in the party of Donald Trump, but con artists should have no place in the Democratic Party," Canova argues on his campaign website.
The newfound prominence of the debate over payday lending reflects a couple of broader trends in U.S. politics.
First, financial policy issues that were once considered boring and obscure have been seized by politicians looking to harness voters' rage about the financial crisis. And second, outside groups on both the right and left are using the threat of primary challenges to get members of Congress to toe the line.
At the same time, payday lending has been swept up in the partisan fracas over the creation of the CFPB. While Democrats see the bureau as a key part of President Obama's legacy, as well as a measure of the influence wielded by liberal icon Elizabeth Warren, Republicans want to rein in an agency they see as unaccountable.
For payday lenders, the partisan rhetoric is worrisome. The industry has long made sizable contributions to elected officials from both parties, and it has thrived by mastering the inside game of politics.
If Democratic officials start to fear that any stance short of full-throated opposition to payday loans will cost them politically, the industry seems likely to lose some of its sway.
The leading payday lending trade group in Washington is headed by Dennis Shaul, who was once a senior adviser to former Democratic Rep. Barney Frank. In an interview, Shaul lamented what he sees as an effort to turn payday lending into a partisan cudgel.
"I think it is atrocious," said Shaul, chief executive officer of the Consumer Financial Services Association of America. "It is a small number of people intent on taking on payday and anyone who is allied with it."
Shaul said he believes that Wasserman Schultz was chosen as the first target of the ad campaign precisely because she is a party bigwig. Other congressional Democrats who cannot raise as much campaign cash may worry that they will be next to come under attack.
Shaul said that the Dodd-Frank Act of 2010, which he helped to draft, reflected a political compromise over payday lending. Some members of Congress wanted a cap on interest rates, while others wanted the law to leave payday lending untouched. In the end, both sides gave ground.
"That kind of compromise has been unacceptable to a group of diehard people who want payday lending ended," Shaul said. "So they are pushing the CFPB to do what Dodd-Frank did not do."
Another payday industry official professed not to be concerned about efforts to unite Democrats against the industry.
"I don't think that it's an issue that's quite the political wedge that some pundits seem to think," argued Jamie Fulmer, an executive at the payday chain Advance America.
The new TV ad targeting Wasserman Schultz states: "President Obama was right when he condemned predatory payday lenders for 'trapping hardworking Americans into a vicious cycle of debt.' "
Still, Allied Progress' Frisch denies that his group's goal with the ad campaign is to enforce a new Democratic Party orthodoxy on payday lending. "Our goal is that the litmus test would be that this type of predatory lending is something that neither party looks favorably upon," he said.
Wasserman Schultz's campaign did not respond to request for comment.
Frisch would not identify specific donors to Allied Progress. But he did say that his group will likely target other members of Congress from Florida.
In April 2015, 26 members of Florida's congressional delegation signed a letter to CFPB Director Richard Cordray asking the bureau to follow the lead of the Sunshine State, which enacted compromise payday loan legislation in 2001.
Wasserman Schultz and nine other House Democrats signed the letter, as did 16 Republicans. Eleven of the letter's co-signers are also co-sponsors of the bipartisan House legislation introduced in November, which also proposes that Florida be used as a model.
Florida's 2001 law established a 24-hour cooling-off period that prevents borrowers from paying off one loan and immediately taking out another. It also instituted a 60-day grace period for delinquent borrowers who attend consumer counseling. And it led to the creation of a database that payday lenders are required to check to make sure that borrowers only take out one loan at a time.
Consumer advocates initially saw the Florida law as a step forward, even though it did not include a cap on interest rates. Today they reject the idea that Florida's law should be used as a model for the rest of the nation.
"I had no idea that our congressional delegation in Washington had these opinions about Florida's payday loans. So I was very surprised by the letter when it came out, and very disappointed," said Alice Vickers, director of the Florida Alliance for Consumer Protection.
