The Effective Enforcement of Vermont’s Consumer Lending Laws: A Needed Model for Other State
“Predatory lending” encompasses all retail loans that impose “unfair and abusive loan terms on borrowers.” Abusive loan terms can appear in loans ranging from mortgages to short-term consumer loans for several hundred dollars. Regardless of the size, these loans generally have two common elements: the loans’ marketing and documentation lack transparency of cost and terms, and the issuer’s incentives typically undermine the borrower’s needs. These loans generally come with high interest rates and other terms that can trap the borrower in cycles of debt. Payday loans are one form of predatory lending consisting of high interest, short-term loans secured on a postdated check for the borrower’s next “payday.” There were as many as 24,000 payday loan stores nationwide in 2006–2007. This number has declined since then, but payday lending is nonetheless a $46 billion industry today. Although often advertised as emergency loans for unexpected expenses, most of these loans go toward daily living expenses.
The Great Recession highlighted the effects of lending abuses, culminating in the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010. The Dodd-Frank Act also broadened state authority in lawmaking and law enforcement for consumer financial protection and reduced state preemption issues regarding predatory lending. Additionally, the Dodd-Frank Act barred the Consumer Financial Protection Bureau from setting consumer lending interest rates for consumer loans. Therefore, it is largely up to states to create and enforce consumer lending laws that restrict predatory lending practices, including the regulation of exorbitant interest rates on small, short-term loans.
States have had varied responses to this charge, and Vermont’s has been particularly robust. This Note focuses on Vermont’s laws that regulate predatory lending—including payday lending—and the state’s efforts to enforce those laws against these lenders. This Note will also compare Vermont’s efforts with other states. Vermont has a suite of laws to combat this type of lending, including the “strongest law in the nation” on predatory online lending. Because Vermont prohibits actual payday lending storefronts, regulating predatory lenders in the online arena is the next step in combatting predatory lending practices. Vermont is also particularly vigilant in enforcing these laws. The Vermont Attorney General’s Office seeks to hold not just predatory lenders but payment processors and other third parties liable for lenders’ deceptive practices. Nonetheless, one of the simplest ways to combat predatory lending is by capping interest rates on short-term loans, and Vermont has done so by capping interest rates at 24%. Many states have much higher interest rate caps or none at all. In those states, some borrowers face interest rates on small consumer loans up to 1500%. This Note looks at how these state laws vary as well as their practical effect on everyday borrowers. Ultimately, this Note will conclude that Vermont’s laws, and their enforcement, are some of the best in the country. Nonetheless, there are some areas that other states have taken the lead on, and Vermont could improve its consumer lending laws by adopting those measures as well.
Questions and inquiries regarding this Note may be forwarded to the author at LawReview@vermontlaw.edu.
 Office of the Inspector General, Challenges and FDIC Efforts Related to Predatory Lending 1 (2006), https://www.fdicig.gov/reports06/06-011.pdf [hereinafter FDIC Efforts].
 See Sarah D. Wolff, The Cumulative Costs of Predatory Practices 8 (2015), http://www.responsiblelending.org/state-of-lending/reports/13-Cumulative-Impact.pdf (explaining the range of predatory loan products).
 See Vermont Office of the Attorney General, Illegal Lending: Facts and Figures 3 (2014), http://ago.vermont.gov/assets/files/Consumer/Illegal_Lending/Illegal%20Lending%20Report%20April%202014.pdf [hereinafter Illegal Lending] (explaining how predatory lending traps borrowers in continual debt).
 National People’s Action, Profiting from Poverty 8 (2012), http://npa-us.org/files/images/profiting_from_poverty_npa_payday_loan_report_jan_2012_0.pdf.
 Jessica Silver-Greenberg, Consumer Protection Agency Seeks Limits on Payday Lenders, N.Y. Times: Dealbook (Feb. 9, 2015), http://nyti.ms/1FnH3La.
 Illegal Lending, supra note 4, at 4.
 See Center on Budget and Policy Priorities, Chart Book: The Legacy of the Great Recession, CBPP.org (Dec. 8, 2015), http://www.cbpp.org/research/economy/chart-book-the-legacy-of-the-great-recession (describing the economic indicators of the 2008 recession and coining that recession as the Great Recession); National Consumer Law Center, Installment Loans 32 (2015), https://consumermediallc.files.wordpress.com/2015/07/report-installment-loans.pdf [hereinafter Installment Loans] (giving an example of long-term cycles of debt).
 See Installment Loans, supra note 8, at 1 (“[T]he [federal Consumer Financial Protection Bureau] does not have the power to limit interest rates . . . .”).
 Editorial, Progress on Predatory Lending, N.Y. Times (Sept. 16, 2003), http://www.nytimes.com/2013/09/16/opinion/progress-on-predatory-lending.html?_r=0. However, Congress does prohibit payday lenders from charging active military personnel more than 36% interest. Louisiana Budget Project, Payday Lenders, LaBudget.org, http://www.labudget.org/lbp/wp-content/uploads/2011/07/Payday-Lenders.pdf (last visited Nov. 30, 2015). The pentagon found that military personnel were three times more likely than civilians to take out a payday loan. Id.
 See Illegal Lending, supra note 4, at 6–11 (explaining the scope of Vermont’s predatory lending laws and their enforcement).
 Id. at 1.
 See id. at 1 n.2 (“By statute, Vermont has no brick-and-mortar payday lenders; illegal lending in Vermont typically occurs online.”).
 See id. at 8–9 (explaining Vermont’s enforcement efforts against predatory lenders and related third parties).
 See id. at 10 (outlining which actors are liable under Vermont’s predatory lending laws).
 Id. at 1.
 See Installment Loans, supra note 8, at v (outlining the interest rate caps, or lack thereof, in all states).
 Id. at 7.