A controversial bill under consideration in Washington's House of Representatives could roll back some rules designed to protect people from predatory payday lenders.
House Bill 1678 would repeal a year-old rule that prevents people from taking out more than eight payday loans in a 12-month period, a move the bill’s sponsor, Rep. Steve Kirby, says is necessary to prevent flight to riskier Internet loans. But anti-poverty advocates say the bill will leave borrowers unprotected.
“The evidence would seem to indicate that consumers are seeking higher cost, unregulated products,” said Kirby, a Tacoma Democrat. He said the eight- loan cap was sending customers into “the wild west,” a world of unlicensed Internet loans where fees are higher and credit limits don’t exist.
Under a 2009 law that Kirby supported, borrowers are limited to eight payday loans per year and can borrow only $700, or 30 percent of their monthly income, whichever amount is less, at any point in time. The measure also entitles borrowers to an installment plan with no additional fees if they cannot pay off their loans by the deadline.
Payday loans are short-term loans that borrowers pay for with a post-dated check for the loan amount plus a fee. When payment is due, the lender can cash the check or the borrower can pay cash and get the check back.
According to data from the state Department of Financial Institutions, payday loans went down from about 3 million total loans to about 1 million in 2010, when the law went into effect.
Because many Internet lenders are unlicensed, there is no data available on whether illegal loan activity has increased since the law was passed. Complaints filed against Internet loan companies went from 96 in 2009 to 108 in 2010, according to the department.
There were 120 complaints against non-Internet lenders in 2009 and 184 in 2010.
Anti-poverty advocates said that the 2009 law is working and that the Legislature should focus on borrower education and stronger regulation of Internet lenders rather than trying to address the problem by lifting the loan limit.
“Let’s attack the problem in a direct and focused way,” said Beverly Spears of the Statewide Poverty Action Network, referring to unlicensed Internet lending. “Let’s build on the existing law and pass new protections on Internet loans.”
Because loans from companies that are not licensed by the state are unenforceable and uncollectable under state law, she said lawmakers should focus on educating consumers so they know they don’t have to pay back predatory lenders.
Opponents of the bill argued that, without the eight-loan limit, there is nothing to prevent people who are living paycheck-to-paycheck from getting into a cycle where they pay off one loan by borrowing money somewhere else.
“Please don’t let a new generation of struggling, single employees learn their lesson the same way I did,” said Margaret Engle. Engle said she had been able to pay off her payday loans under an installment plan after the 2009 law passed. “We need more regulation of all payday lenders, not less.”
Steve Breaux of the Washington Public Interest Research Group also testified against the bill, saying that WashPIRG frequently heard complaints about financial practices in the state but that the eight-loan limit had never been one of them.
Kirby said the testimony against the bill came from groups that wanted to see payday loans eliminated entirely, but he said he thought they were a necessary line of credit for people in the state.
“People need this product,” said Kirby. “This is a very important industry to keep alive.”
He said he thought the cap on the amount of money that borrowers can have out at a specific time and the installment plan provisions were adequate protections for borrowers.
According to Public Disclosure Commission data, Kirby received campaign contributions from some groups representing lenders in the state in 2010, including the Washington Collectors Association.
The bill was scheduled for a vote Friday in the House Business and Financial Services, but was taken off the agenda. Kirby said he was confident he had enough votes to get it through committee and that he thought it would pass on the House floor. But he said he wanted to be sure the Senate would act on the measure before the committee took any more action.