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POSTED: Thursday, Feb. 12, 2009

Bills would rein in ‘payday’ lenders

A crackdown on “payday” lenders accused of preying on low-income consumers is getting some traction in the Legislature this year.

At least nine bills are in the works in the House, and others are pending in the Senate. But the payday lending industry says the measures could put them out of business, costing jobs and shutting off a means of credit that works well for people who use the loans responsibly.

The harshest bill, sponsored by Democratic Rep. Sherry Appleton of Poulsbo, prohibits the paycheck-related loans. Her House Bill 1425 would subject any short-term loans to the state’s usury limit of about 12 percent – far below what activists say is the 391 percent annualized equivalent of fees charged for small two-week loans.

“It’s time to do something. We can’t wait,” Appleton testified Tuesday before the House Financial Institutions and Insurance Committee, which heard stories of predatory lending. “The economic times are bad.”

TRAPPED IN A CYCLE OF DEBT

Some bills would prevent lenders from contacting borrowers at work. Others would cap loan fees at anywhere from 10 percent to 36 percent, which is the federal limit for loans to military personnel.

One bill, HB 1684, limits total loan balances to 30 percent of a borrower’s income and creates a database of all loans and borrowers to ensure that excess credit is not extended.

Tuesday’s hearings in Olympia in House and Senate committees drew testimony from people who said they had become trapped by a cycle of debt through paycheck loans. The loans are obtained by giving a lender a postdated check that isn’t cashed for a few weeks.

Jeanne Henderson of Seattle said she supported HB 1709, which limits fees and interest to 10 percent on a small loan. The 62-year-old told the committee that she resorted to payday loans in 1999 when she and her daughter became homeless, and she needed money to pay for clothes, food and shelter costs.

“I turned to the payday-loan lenders because I could,” Henderson said. She began with a $300 loan, and after borrowing simultaneously from two lenders, her debt grew and eventually amounted to $2,694 in fees at the end, she said.

“I’m certain my story is not unique. I just implore that you legislate,” Henderson said. “To be polite, I just want to say their business operations are set up to exploit the financially desperate, of which I was one.”

‘IT’S CALLED USURY’

Margaret Engle, a state employee from Lacey, complained of collection techniques and high fees. And former Secretary of State Ralph Munro weighed in favoring regulation, if not a ban of the practice based on his experiences with military families harmed by the quick credit.

“In polite terms, it’s called usury. It is what is called loan-sharking, plain and simple,” added Bob Cooper, a lobbyist with the National Association of Social Workers. He said some credit unions are providing small loans at closer to 18 percent.

But industry representatives including Dennis Basford, chief executive of MoneyTree, said the loans “provide a credit option for the vast majority of consumers who use it wisely.”

Basford said his company has outlets in five states and employs 650 people in Washington. He and others warned that limits on fees could shut off a valuable and legitimate form of credit for some working people who cannot get loans from banks or credit unions. And it could put people out of work, he added.

Basford described the loans as a “highly regulated loan product” and argued that there are no hidden fees. He said a 12 percent interest limit would mean his company could earn just 42 cents on a $100 loan over a two-week period, which is too little to run the business.

Rep. Steve Kirby, a Tacoma Democrat who’s chairman of the House Financial Institutions committee, said he’s taking a middle-ground approach with several measures he proposed.

HB 1310 restricts the kind of contact a lender can make with a borrower, outlawing harassment, for instance. And HB 1684, which has some industry support, creates the database of loans and limits total loans to a percentage of a borrower’s gross income. HB 1685 allows a 60-day payment option for small loans.

“The bills I have introduced today all have a few things in common. They are all designed to preserve the payday loan as an option for those who have no other choice. But they also make it harder for an individual to get into trouble using this product, and also easier to get out,” Kirby told the committee.

“This is the year to address the problems in this industry. I intend to make a side career over the next week or so to hammer out some kind of agreement” to give certainty to consumers and industry, he said.