Most vulnerable members in a dangerous cycle of debt. As this show has reported, these loans are pushed by companies for low to moderate americans with rates that would make a loan shark blush. They deal with tens of thousands of story fronts and online. Regulator are waking up to the threat posed by them that have slipped the knot of regulation new zealand some states. Tonight youre going to hear why the payday loan industry says a federal effort to stamp out Consumer Fraud called open operation choke point. It is important to acknowledge that the idea of someone borrowing a relatively small amount of money, 300 until they get paid in two weeks sounds reasonable. Most people cant pay the loans back on time and that is the reason that four out of five payday loans are renewed within two weeks. Borrowers taking out a median of 10 loans a year. It means that pay day loans put people into an endless cycle of fees more than the amount borrowed. The good news is that the Consumer Protection bureau will soon propose new rules that may force these lepders to verify a lend lenders to verify the borrowers income, to take into account their obligations, rent, mortgage payments, transportation and child care. Some advocates think the rules will go far enough to protect borrowers from falling into this debt trap. The industry meanwhile sees the potential rults as another rules as another threat to its existence. Whatever happens it is important to under the damage that pay day loans have done to some peoples lives. It was a horrible decision that she now regrets. This is a 43yearold mother of five who lives in billings, montana. She found herself in a financial bin a few years ago at the time i was divorced, struggli struggling financially. I came across loan point u. S. A each year 12 Million People nationwide take out loans from pay day lenders. Many of which operate through the internet. One company, money mutual, has a flashy ad featuring montel williams. Go to this company, they will give you up to 1,000 in as low as 24 hours. Reporter she clicked a few buttons on the website and within hours 600 was electronically transferred into her Checking Account. What she didnt fully understand were the terms of the loan what i discovered is loan point was automatically deducting kind of interest fees of 180 every two weeks out of my bank account that 180 Interest Payment actually meant her internet payday loan had a whooping annual Percentage Rate of 780 . The worst part was not being able to provide for your kids. If they wanted to play on a soccer team, i had to tell them they couldnt because i was stuck in this loan. It was hard. By the time she came to me she had paid in excess of 180 interest on a 600 loan 1800 an attorney was contacted. She sent me the papers which i looked through. It was on its face shocking because montana has usury laws that cap lending at 36 apr when he went on the loan point website, he confirmed that the pay Day Loan Company was charging considerably more than what was legally allowed in montana i got onto the companys website and it brought up for residents, they charge between 700 to 900 apr her story isnt unique. One third of all pay day loans are from internet lenders who charge an annual Percentage Rate on average of 652 . The whole industry, in my opinion, is insidious. It is impossible to hold these Companies Accountable loan point u. S. A eventually settled the Class Action Lawsuit and he was able to get them to pay 233,000 in Financial Relief to hundreds of residents, including this lady who had borrowed money from the company. But montana isnt loan when it comes to high interest pay day loans. 12 states in colombia have banned them or have strict laws that make them unprofitable about 70 of the lenders working on line do not have a licence in all of the states where they lend and a lot of problems have resulted from lenders who are operating outside the bounds of state law this is the director for the small loans project, a Nonprofit Organization based in washington. He has been studying the harmful effect of pay day loan 30 of all borrowers have experienced some kind of unauthorized or fraudulent withdrawal from their Checking Account in 2012 the department of justice created a focused effort to tack emthe problem of tackle the problem of electronic Consumer Fraud in the brarng r Banking System. It is called operation choke point and it had a massive impact on the pay day loan industry. Theyre gaining exactlies to the electronic Payment System and access to the Payment System and taking out money. In every one of the cases that have been announced so far under operation choke point, internet pay day lenders have played a big role in creating a vulnerability that fraudsters are using to defraud consumer since 2012 operation choke point has enabled prosecutors to identify several small regional banks that allowed fraud sisters fraudsters, mainly pay day learneders, to steal tens of millions of dollars out of the bank account of more than a million different customers. It wasnt along before choke point had a Chilling Effect on the entire pay day loan industry. According to an industry trau p trade association sints 2013 since 2013 more than 780 bankss, including bank of america, capital 1 and jp morgan chase, have severed their ties with all pay day lenders because of choke point. Suddenly, the pay day loan industry found itself threatened and access to the Banking System jeopardized the the campaign is against the industry as a whole. It is unconstitutional and violates Due Process Rights of the lawabiding good and ethical members of the industry Charles Cooper represents the Community Financial services association, the pay day loan industrys trade association. That organization is suing the fdic, the federal reserve, and the office of the controller of the currency, over their part in operation choke point. Were challenging what is an enmass assault, really, on the pay day lending industry itself in an effort to destroy it carl frish who runs allied progress based in washington, says the pay day loan industry fought back against choke point by using biggest weapons at its december possessal, money and access to politicians they paid Congress Thousands of dollars to hinder the governments ability to hold them accountable allied progress says in this report that money from the pay day loan industry almost 650,000 was donated to 12 members of the house Financial Services committee between 2011 and 2015. The report suggests that the money was given to the congress men in exchange for sponsoring legislation to force the department of justice to shut up operation choke point down. Congress man from missouri started taking in thousands of dollars from pay day lenders. He sponsored legislation that would end operation choke point. These things were very closely timed and it brought in serious questions that bill was hr 4896, end operatings choke point act of 2014. Frish says luke mier took lots of money from pay day lenders. Despite repeated requests from Al Jazeera America luke myer declined to appear on camera or comment on his dealings with the pay day loan industry. The allied Progress Report points to 11 other current or former members of the committee who individually took between 26,500 and 100,000 in contributions from the pay day loan industry during the same period. We talk a lot in american politics about eyepopping figures with Campaign Finance when were talking about president ial elections zak carter is the reporter at the huffington post. Whats remarkable in operation choke point is that for a few thousand dollars here or 10,000 there, you can actually get a bill moved in congress and take up weeks of Congress Time accordingly to frish several senators have received money, including ted cruz, who has received 3500 since 2011 and marco rubio who has received almost 35,000 since 2010. Marco rubio has filed legislation to end operation choke point for what he would have us believe is its impact on gun sales that focus on guns shows how the battle over operation choke point evolved beyond the fight over the pay day loan industry. Republicans charged that the Obama Administration was using choke point to attack gun dealers access to the Banking System i think operation check point is an abuse of power note notice in November Ted Cruz raised operation choke point again at a hearing. He was talking about the Obama Administrations effort to legally curtail citizens Second Amendment rights on gun dealers it was to cut off the lines of credit, cut off the banking resources, Financial Resources to lawful Small Businesses, engaged in the exercise of Constitutional Rights and selling lawful firearms senator, that is not what operation choke point was intended to do. It was developed by career lawyers to focus solely and squarely on fraud in the Payment System did you apologised to any american citizen, Small Business owner for violating their constitutional right to keep and bear arms . Senator, what we did most politicians dont want to defend the pay day loan industry. It is an industry that has a bad representation among consumers in general, but what has happened is we have a situation where one small industry has been able to get an entire committee of congress, but two president ial candidates to talk about their pet issues as if theyre serious matters facing the general public. A single industry with lobbying and a few thousand dollars in contributions has been able to change the dialogue on capitol hill Charles Cooper says operation choke point unfairly targets the pay day loan industry this industry is addressing great societal need. There is a group of individuals and a pay day loan is often the only thing standing between them and their electricity but back in billings this lady has advice for her own daughters who might some day think about taking out a pay day loan i will them to stay clear away from them one quick note. We reached out to several banks the pay day loan industry says have severed ties with lenders because of operation choke point. Jp morgan chase, the biggest bank by assets, told us operation choke point had nothing to do with its decision to stop working with pay day lenders. There are critics who say pay day loans are not a problem, theyre a solution to a problem. I will talk to one of them coming up. Evidence year 12 million every year 12 million americans borrow money from a payday loan lender. It has attracted fraudsters on the internet. The department is clamping down on electronic fraud with a program called operation choke point, but some critics say that operation choke point is, in fact, an overreach by the Obama Administration and it is going after legitimate lawabiding businesses. Discussing this is my guest. Good to have you on the show. Thank you for being with us. When do you represent . The brick and mortar payday lenders . That is right. A lot of our brick and mortar lenders have a payday component, but our trade organization represents the brick and mortar lender payday loans have horrible annual rates, theyre not meant to be thought of as a margaret or car loan or student form. The average rate of the online payday line is 652 . The woman in our story was paying 780 for an online loan. How does an industry justify those rates . Noone can just those rates, but i would challenge anyone to find that rate coming from an entity that is stateregulated. It does not happen. The problem here is there is a k konflation on lines, lenders offshore registered with nobody. You have to make distinctions among those enlts to determine whether or not they have a good reputation lets talk about some of those distinctions. Some of the worst offenders are the tribal lenders and on line. The average apr of a brick and mortar, a store, payday alone is 391 program. Sometime very high. Yes. It is high. It reflects the fact that this is a relatively laborintensive operation. If you look at the profits that they make is far less than what a bank makes on a return of capital. It is not that people are making exorbitant profits. It is a relatively inefficient way in which to loan money. It has the advantage of being in the neighborhoods of providing a friendly oneday service, also other advantages in terms of the excess that it can have. The rate is high and the only way it will come down is through competition. That is not being sponsored or formatted by the cfpb you mean other banks offering the same audience loans at a better rate. It often is. We find that they are not with us a very long period of time. That is to say, most of them go on to have credit relationships that are better and less expensive than payday loans for them. Payday loans are a special kind of thing. They are useful for people who run into a cash problem that is different from their normal line of cash flow and have the requisite number of bills that they still have to pay off and so forth. If people are in the product for a long time, that ask definitely to their disadvantage it is said the average borrower across all of these loans that you say we should distinguish between, but across all of those loans the average borrower is in it for about five months a year. In the case of the woman we portrayed, she was fundamentally worse off at the end of the process, even though it was a last resource. Had she known she was going to get into, i think she would have made the choice not to get into it right. She is dealing with an offshore unregulated entity. Any time anybody does that, theyre likely to wind up with not just a bad experience but a terribly expensive one. Thats why you really must can check with all the entities at your disposal as to whether or not this is a regulated entity too that you are dealing with lets talk about the choke point operation. They have targeted the online side of things. To date is has successfully prosecuted several regional banks that were aiding fraudsters in the industry. The department of justice said these people were stealing tens of millions of dollars out of the Bank Accounts of more than a million different customers. It sounds to me like they were targeting some bad apples and the industry should be behind that. Were not behind it because it is an egregious overextent. Before i did this job, my job oddly enough was Money Laundering under a congressional supervision. I worked for bernie frank. You cannot talk to anyone who knows anything about this area what cant explain to you rather readily how ease yp it is to make distinctions and to go after bad actors as compared to a broad brush. What your nams did not say, and i suspect because you do not know, is this they actually published a list to go to examiners which said the categories and the entities that they wish to get we have that were not talking just about payday lenders, but the occasional things, a whole bunch of things. I applaud anything that gets at the scourge of online or any kind of entity that charges those kinds of rates and holds consumers up to that kind of situation, but to use the power of the Justice Department to enable an examiner to come in and say, its my preference, my taste, that you do not have this product in your bank, that is not the american way at all. If they want to adopt a rule and allow us to comment on it, if they want to adopt due process as part of their regulating of payday lending absolutely fine. What they have done is an attack on the industry as a whole while denying theyre doing it and the reason we have sued is precisely to get at the discovery that will enable us to show, and we already have through the congressional process, shown that they didnt care to honor the law, but what they cared to honor was a personal preference thanks for joining me to clear some of it up. Coming up, generation debt, students dragged down by student loan and theyre dragging the rest of us down with them. Find fantasy shows. When it comes to the things you love, you want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Al jazeera america. One in six american at all times are thought to be living with student debt and 90 of the debt is owned by the u. S. Government. Right now if you want to refinance your federal Student Loans you have to try your luck with a private lender but the terms can be strict. Many applicants get rejected. Our correspondent has the story. Reporter this man shares a tiny studio with his fiancee in new york city. He sticks to a tight budget to keep up with his student loan payments my student loan is more than my total, 2,000 a month. Reporter he is one of 40 million americans paying off Student Loans. The u. S. Government profits handsomely from those loans. It charges all borrowers the same interest rate. Federal data shows it will earn 66 billion dollars in loans issued between 2007 and 2012. The private sector wants a piece of that growing money pie. Unlike mortgages or auto loans, student debt is not backed by an asset. So if, for example, you default on your mortgage. A lender can foreclose. If you stop paying your auto loan a bank can repossess. If you failed to meet your student debt obligations, your knowledge and skims cannot be taken away. Educational loans are a riskier business which is why the government owns about 90 of student debt. This c oechlt of common bond, the Company Started three years ago. It raised 10 Million Dollars in investors anxious to meet student debt refinancing. The secret to success is screening for applicants. We look at any major settlements or payments outstanding over 60 to 90 days. We will look at bankruptcys, income, employment. These are things the federal government just doesnt. Reporter because the Company Looks at so many factors, this man managed to get a lower rate. The rate you were paying before was how much more . It was 2 points more. Significantly more. Reporter common bond spent to generate up to 15 Million Dollars in profit this year what we decided to do was focus on a population of people whose earnings potential is high and employment prospects are high as well. Reporter common bond also goes one step further. It aggressively monitors its clients payments. If has also created a community of sorts for its borrowers and hosts social Network Events foreign them around the country. Do you think that you deserve to be treated differently pause you have been so financially astute . Im not sure if i deserve to be treated differently, but thats how this works reporter in effect, growing a pool of graduates, investors are confident will give them steady returns thats our show for today. Im ali velshi. Thank you for joining us. The news continues here on Al Jazeera America. Turned. Remember . Die. This el nino is larger than the 19911998. 20 years ago we talked about it being destructive. In california