Traditional payday loans would be eliminated in Washington under last-minute legislation introduced in the House this week. Instead, lenders could offer a new type of high-interest installment loan.
Critics say the new product would be just as predatory as the one it would replace.
Details about the proposal were released Thursday afternoon – six weeks past the normal deadline for policy bills and just days before the end of the regular legislative session.
The bill’s sponsor, Rep. Larry Springer, D-Kirkland, said House Bill 2040 – first introduced a week ago as a title-only measure – would get rid of a payday loan system that he and other lawmakers dislike while preserving consumers’ access to credit.
He called the bill a “scaled-down version” of Senate Bill 5312, a measure supported by Seattle-based payday lender Moneytree. That bill had previously failed to move out of a House appropriations subcommittee, although a major supporter declared it still alive this week.
SB 5312 passed the Senate on a 30-18 vote earlier this year. Springer said Republicans who control the Senate also have expressed support for his bill, telling him that the issue is a priority for the Majority Coalition Caucus they formed with two Democratic defectors.
One or both of the bills apparently could figure into upcoming budget negotiations. On Thursday, Sen. Don Benton, R-Vancouver, said SB 5312 is “critical” to the budget passed in the Senate. He labeled it “necessary to implement the budget” – which makes it exempt from legislative deadlines for passage.
Just how SB 5312 is instrumental to the budget is unclear. A fiscal analysis of the bill did not show a net gain for state coffers.
The Senate bill would allow lenders to make installment loans up to $1,500 with terms of six to 12 months. In addition to 15 percent loan origination fees, lenders could also charge monthly maintenance fees up to $90 and loans would be subject to a 36 percent annual interest rate. After all fees and interest are considered, the loans would have effective interest rates of up to 200 percent.
Springer’s proposal, in addition to repealing payday lending laws by January 2016, would cap the new loans at $1,000. Loan terms would also be shortened to three to six months, and maintenance fees would be capped at $60. A Department of Financial Institutions analysis of the proposal is pending.
According to Springer, House Democrats spent late Friday afternoon discussing his proposal in caucus. He said a caucus vote will be taken Saturday, and if enough of Democrats support the bill, it could make it to a floor vote as early as this weekend.
Some consumer advocates are crying foul.
Bruce Neas, an attorney with Columbia Legal Services, called the timing of the bill “ridiculous.” He said that it was “absurd” to think that anyone could carefully read and consider a 43-page bill in so little time.
Neas said that the aspects of SB 5312 he and other consumer advocates took issue with are still in HB 2040. He said the new bill will still allow consumers to be trapped in a cycle of debt and that the bill’s repeal of payday lending is relatively meaningless because effective interest rates would remain sky-high.
During the 2012 election season, payday lender Moneytree and its executives contributed a total of $193,755 to state lawmakers’ campaigns, with 98 percent of that money going toward Republican candidates, according to Public Disclosure Commission records.
Benton was among the biggest beneficiaries in the Legislature, with $26,800 of Moneytree’s contributions going to his re-election efforts. Rep. Judy Clibborn, D-Mercer Island and one of three co-sponsors of the House bill, received $1,800.