A message a group allied with payday lenders used on billboards and on Twitter. CTMIRROR.ORG
A message a group allied with payday lenders used on billboards and on Twitter.
A message a group allied with payday lenders used on billboards and on Twitter. CTMIRROR.ORG

The state House of Representatives unanimously approved legislation Wednesday that would broaden consumer protections against online financial threats ranging from payday loans to identity theft.

The bipartisan legislation is a vote of confidence in the state Department of Banking and its battle with payday and short-term lenders, which took an unexpected turn last month after billboard and social media attacks against Gov. Dannel P. Malloy.

If passed by the Senate, the law would bar lenders from collecting on loans that carry annual interest rates in violation of the state’s limit of 12 percent, according to Rep. Matthew Lesser, D-Middletown.

“We’re declaring those loans null and void, and if they’re operating in Connecticut, we’ll treat them as a gift,” said Lesser, the first-term co-chair of the legislature’s Banking Committee.

The Banking Department last fall imposed a $700,000 fine and ordered two on-line lenders owned by the Otoe-Missouria tribe of Oklahoma to cease making small, short-term loans at annual interest rates that were 37 times the maximum allowed by state law — up to 448 percent.

The lenders insisted they were exempt from state banking rules as entities owned by sovereign tribal nations. Last month, the tribe and its allies drew Malloy into the dispute by accusing the Democratic governor of being party to a regulatory action that deprives an impoverished tribe of revenue.

“Gov. Malloy, Don’t take away my future,” reads the headline over a photo of a Native American child that is circulating on Twitter. A similar message was featured on billboards in Connecticut and, according to Lesser, in Times Square.

The strategy by a group called the Institute for Liberty, whose funders are secret, seems to have backfired as it prompted a denunciation of the campaign and the interest rates charged by the Otoe-Missouria by Connecticut’s two federally recognized tribes, the Mashantucket Pequots and Mohegans.

Under existing law, Lesser said, consumers could refuse to pay interest above 12 percent. The new legislation would bar online lenders from demanding even repayment of the principal on loans made in violation of Connecticut law, he said.

“We’re saying if you are a payday lender and you are ignoring Connecticut law, you just can’t treat Connecticut law as a cost of doing business,” Lesser said. “You’re going to lose the principal.”

The bill was supported on the House floor by Republican members of the Banking Committee. Lesser said the bill incorporated identity-theft protections suggested by Rep. Laura Hoydick, R-Stratford.

“We have a really strong pro-consumer agenda on the Banking Committee, and I think there was a bipartisan consensus that we wanted to tackle a whole bunch of areas and adjust the laws to address emerging threats,” Lesser said.

Other provisions of the bill would give the Banking Department greater authority to regulate virtual currencies, such as bitcoin, and give victims of identify theft the right to bar credit rating agencies from releasing credit information without their permission.

With a so-called “security freeze,” lenders cannot gain access to a consumer’s credit file unless the consumer thawed the file with a code, similar to a PIN number.

A frozen credit file makes it harder for an identity thief to obtain a fraudulent loan.

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Mark PazniokasCapitol Bureau Chief

Mark is the Capitol Bureau Chief and a co-founder of CT Mirror. He is a frequent contributor to WNPR, a former state politics writer for The Hartford Courant and Journal Inquirer, and contributor for The New York Times.

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