Senator Bob Corker, the Tennessee Republican who is playing a crucial role in bipartisan negotiations over financial regulation, pressed to remove a provision from draft legislation that would have empowered federal authorities to crack down on payday lenders, people involved in the talks said. The industry is politically influential in his home state and a significant contributor to his campaigns, records show.
The Senate Banking Committee’s chairman, Christopher J. Dodd, Democrat of Connecticut, proposed legislation in November that would give a new consumer protection agency the power to write and enforce rules governing payday lenders, debt collectors and other financial companies that are not part of banks.
Late last month, Mr. Corker pressed Mr. Dodd to scale back substantially the power that the consumer protection agency would have over such companies, according to three people involved in the talks.
Mr. Dodd went along, these people said, in an effort to reach a bipartisan deal with Mr. Corker after talks had broken down between Democrats and the committee’s top Republican, Senator Richard C. Shelby of Alabama. The individuals, both Democrats and Republicans, spoke on condition of anonymity because they were not authorized to discuss the negotiations.
Under the proposal agreed to by Mr. Dodd and Mr. Corker, the new consumer agency could write rules for nonbank financial companies like payday lenders. It could enforce such rules against nonbank mortgage companies, mainly loan originators or servicers, but it would have to petition a body of regulators for authority over payday lenders and other nonbank financial companies.
Consumer advocates said that writing rules without the inherent power to enforce them would leave the agency toothless.
Mr. Corker said in an interview that he had played a role in shaping that section of the legislation, but said people should withhold judgment about the treatment of payday lenders and other companies until the bill was made public.
Asked whether the industry’s campaign contributions to him had shaped his thinking about the issue, he replied, “Categorically, absolutely not.”
After banks, payday lenders have been perhaps the most vocal sector of the financial services industry in fighting off efforts at federal regulation. The industry’s trade group estimated that payday loan companies contributed $10 billion to the economy in 2007, and directly employed 77,000 people.
W. Allan Jones, who started Check Into Cash, in Cleveland, Tenn., in 1993, has been a longtime friend and supporter of Mr. Corker’s. The company says it is now the country’s third-largest payday-lending chain, with 1,100 stores in 30 states. Payday loans are short-term, high-interest loans — typically 400 percent on an annualized basis — to help borrowers cover expenses until their next paycheck. Many take out more loans, digging themselves deeper into debt.
Mr. Jones, his relatives and his employees have given money to Mr. Dodd, Mr. Shelby and other members of the Banking Committee, but have been particularly active donors to Mr. Corker, records show. They have contributed at least $31,000 to his campaigns since 2001, when he was running for mayor of Chattanooga.
In 1999, Mr. Jones and other payday lenders started the Community Financial Services Association to lobby against regulation. The group’s political action committee gave $1,000 to Mr. Corker last year.
State lawmakers and regulators in recent years have moved to rein in the practices of payday lenders, which watchdog groups say often charge exorbitant fees for low-income consumers with little financial sophistication.
Last year, the White House proposed the creation of a consumer protection agency to guard against lending excesses. The proposal included the first comprehensive federal plan to regulate the industry.
In December, the House passed a regulatory overhaul that provided for a new consumer agency with power to write and enforce rules for banks and other financial institutions, like payday lenders.
In 2006, Congress adopted a bill championed by Senator Richard J. Durbin, Democrat of Illinois, to cap at 36 percent the annual percentage rate on loans to active-duty members of the military and their families, a step that primarily affected payday lenders. In 2008 and 2009, Mr. Durbin proposed extending that cap to loans to all borrowers.
The industry says a cap would be devastating to its profitability.
On Monday, the nation’s largest payday lender, Advance America of Spartanburg, S.C., said in a filing to the Securities and Exchange Commission that “any federal law that would impose a national 36 percent A.P.R. limit on our services, if enacted, would likely eliminate our ability to continue our current operations.”
According to the filing, the industry began to expand significantly in the late 1990s because of the low cost of entry and fairly loose state regulations. “However, due to market saturation and to federal and state legislative and regulatory challenges, we believe the cash advance services industry has largely stopped growing in number of centers in the United States,” Advance America said.
Mr. Corker’s campaign received $6,500 in the last two years from Advance America’s founder, George D. Johnson Jr., its chief executive, William M. Webster IV, and its political action committee.
A report last year by Citizens for Responsibility and Ethics in Washington, a nonpartisan watchdog group, found that the payday industry increased spending on lobbying to $2.1 million in 2008, from $730,000 in 2005.
Steven Schlein, a spokesman for the Community Financial Services Association, said the industry should not be dragged into the regulatory reform.
“The banks caused the financial meltdown, and they’re spending millions and millions to spare themselves from tighter regulation while throwing the consumer lending industry under the bus,” he said. “They’re trying to divert attention to us.”
Mr. Corker also issued this statement: “Our goal in this legislation should be to level the playing field so that the same rules apply to all involved in lending.”
Consumer groups, however, say that enforcement is crucial to curbing abusive, deceptive or unfair practices.
On Tuesday, while Mr. Dodd and Mr. Corker continued negotiating other provisions of the regulatory overhaul — notably, the extent to which state attorneys general would be able to enforce consumer protection rules against banks — the Federal Reserve’s chairman, Ben S. Bernanke, met with National People’s Action, an activist group that wants the Fed to restrict the banks it oversees from financing payday lenders.
Mr. Bernanke, who had met with the group twice before, is trying to fend off proposals in the Senate to strip the Fed of much of its power to supervise banks. A recommitment to protection consumers is part of that strategy.
Kitty Bennett contributed research.