Small-loan bill created to fit needs of both consumers, businesses

In its Feb. 26 editorial, The News Tribune was correct to assert that I’ve always supported making small, short-term loan products available to people who need them when there is no alternative. But it was wrong to attack a bill now in the Legislature that creates a new and improved small-loan product.

Here’s the thing: People with good-paying jobs and plenty of money don’t need payday loans. They’ve got their own version of them: They’re called credit cards, and I’ll bet every member of The News Tribune editorial board has got a credit card or three in his or her wallet or purse.

But there are lots of people whose current life circumstances prevent them from getting one of those cards, or from walking into their neighborhood bank or credit union and taking out a loan if they have a short-term need – like a car repair or a vital home appliance failure.

A payday loan is their only available choice, and it will only cost 10 percent to 15 percent of the amount borrowed, depending on the loan.

Problems occur when a borrower’s need outlasts the short-term loan, and they reborrow to pay for their original loan instead of their original need. The solution, the consumer advocates said time and again during hearings in front of my committee, is a longer-term product that’s less expensive, more flexible and more transparent.

I’ve been hounding the industry to come up with such a product for years, and that’s how Senate Bill 5312 came to be.

Here’s the challenge. Lenders need to be able to make enough money doing what they do to keep the doors open, just like car dealers, sandwich shops, banks – or newspapers. Making unsecured loans to people who don’t qualify elsewhere is inherently risky. So yes, we’re working with the lenders to set up a system they can live with.

SB 5312 got changed substantially as it moved through the Senate, and not particularly in ways the lenders like. The bill is now before my committee in the House – and I can pretty much guarantee it will be changed some more. Because I’ll be talking to the advocates who claim to represent the borrowers, too – if they’re willing to come to the table.

My goal is to create a product that allows lenders just enough room to stay in business – a business that will be both transparent and carefully regulated. Transparent means that the state knows what the lenders are doing – and the borrowers know what the deal is, too.

Carefully regulated means we create a separate license for this product and set strict rules on interest rates, loan amounts and borrower eligibility – including barring loans to members of the military, if that’s desired – and that the state enforces those rules.

The loans spelled out in SB 5312 are very different than payday loans. Although they will meet much the same need, they are more like regular installment loans – and they are cheaper and safer than payday loans. Contrary to the rhetoric of the bills’ opponents, members of my committee are serious about putting in place policies to protect consumers from predatory lending practices.

Alternatively, we could do what the nay-sayers want and just eventually put our local storefront lenders out of business. But that won’t be the end of predatory lending.

It seems there’s another segment of the industry very eager to make “payday loans” to my constituents – and they’re growing fast. Only instead of in local storefronts, they’re located on the Internet – maybe in the Cayman Islands. And instead of carefully controlled and regulated, they’re unlicensed and totally unregulated.

When these operators make a loan, they don’t ask for a post-dated check: They ask for access to your bank account.

That’s not an outcome any of us want. SB 5312 is a much better solution that addresses the legitimate needs of many of my constituents, and many other people in communities across the state.