08/29/2012 11:44 am ET Updated Oct 29, 2012

New Name for Payday Won't Fix It

Payday lenders know their name is mud.

That's why they've started calling themselves "nonbank lenders"--nixing any mention of "payday," in hopes a name change will help shed their loan-shark image. But that's hard to do when they still offer loans at 400 percent interest, designed to trap the financially vulnerable in debt.

Payday lenders have learned over the last several years that they are personae non gratae at the local level, where 17 states and the District of Columbia have essentially banned their products. Voters in Ohio, Arizona and Montana, for example, voted overwhelmingly for ballot initiatives to curb these abusive loans.

Now the national bank regulator, the Office of Comptroller of the Currency (OCC), says it does *not* want the chance to regulate large payday lenders. It told Congress last month that a bill proposing this "would provide special status and federal benefits to companies...[who offer] credit products and services that the OCC has previously found to be unsafe and unsound and unfair to consumers."

Payday executives are pushing this bill (HR 6139) to escape oversight by the Consumer Financial Protection Bureau and to side-step state curbs on their business. Do they assume the OCC would be more of a pushover?

Not likely, since the list of OCC concerns with the bill are eye-popping. It includes the likelihood that this bill would foster products trapping consumers in "a cycle of repeat credit transactions, high fees, and unsustainable debt." The OCC also mentions problems complying with anti-money laundering laws. And it worries about "safety and soundness" -- regulator-speak for a possible bailout. Does that mean that taxpayers would be on the hook for rescuing failed payday lenders?

At a Congressional hearing on HR 6139, payday lenders and their supporters stayed right on script, completely avoiding the term "payday lender" and talking about short-term, small dollar lending instead. I'm not sure this rebranding is going to work, though: A shark with lipstick is still a shark.