A controversial proposal backed by Seattle-based payday lender Moneytree took another step forward in the Legislature on Wednesday.
The proposal drew criticism from consumer advocates during Wednesday’s hearing before the House Committee on Business and Financial Services. Opponents claimed the bill is being rushed through the process and called the high-interest loans dangerous.
Senate Bill 5312 would allow lenders to make loans of up to $1,500 with effective interest rates nearing 200 percent and repayment periods stretching from six months to a year.
Currently, payday lenders can lend up to $700. Those loans — which can have effective interest rates of up to 391 percent — must be repaid with one balloon payment on the borrower’s next payday.
Sen. Steve Hobbs, D-Lake Stevens, says he wants to provide customers a better option.
“I have been a great enemy of the payday loan industry,” said Hobbs, who sponsored SB 5312. “But my thing is, maybe perhaps instead of completely destroying the industry, that we put them in a different direction.”
Hobbs said that he was happy to hear the House committee was considering an amendment to the bill, saying the legislation came out of the Senate too quickly for him to polish it.
Tacoma Democratic Rep. Steve Kirby, who chairs the House committee considering the bill, said he worked with Moneytree in crafting the amendment.
Among other changes, Kirby’s amendment caps the number of loans a borrower can take in a year, lowers some of the fees on the loans, and prohibits military members from taking on the loans. Opponents had criticized the original legislation as an end-run around the 2007 Department of Defense restrictions on payday loans to service members.
Kirby said he hoped the amendment would make the bill “a little more consumer-friendly.” He said he thinks the proposal would create an alternative to payday loans and ultimately replace the short-term loans many criticize as being predatory.
Mark San Souci, a state liaison with the Department of Defense, testified at Wednesday’s hearing that the department opposes the original version of the legislation. He said allowing service members to take out the proposed loans would be “detrimental” to the military.
Nearly a dozen people spoke against the amended bill, including Bruce Neas, a lobbyist with Columbia Legal Services. Neas said the bill creates a “new and very complicated process.” He asked the committee why a product deemed too dangerous for the military was OK for other Washingtonians.
Moneytree’s CEO, Dennis Bassford, told the committee his customers want the option of taking out installment loans. He said similarly structured loan products are available in Colorado and consumer advocates there have supported them.
The proposal has been scheduled for a possible committee vote next week.