Purported payday lending reform keeps turning up like a bad penny at the Washington Legislature.
The latest effort, which the state Senate approved by a 30-18 vote March 10, is modeled on a Colorado reform. But this new proposal actually worsens loan terms for the typical low-income borrower in our state.
Washington had the right idea six years ago when it enacted stronger protections against gouging. Those 2009 reforms limited borrowers to eight loans in a year, capped loans at $700, capped fees and provided an option for borrowers to convert their two-week payday loans into six-month consumer installment loans — without additional fees.
The law is working. It has helped cut down on the volume of emergency lending that too often trapped low-income people in a cycle of growing debt.
The industry issued more than 3.2 million loans worth $1.3 billion in 2009, according to a Seattle Times report that cited data from the state Department of Financial Institutions. Since reform, loan volumes fell to 872,000 in 2013 and had a value of just $331.4 million; the number of payday outlets similarly fell from 494 to 174.
Moneytree, the Seattle-based lender, is now leading a charge to rebuild the industry, and it changed its political strategy in last fall’s elections in a bid to broaden its legislative support. Moneytree, according to the Times’ analysis, gave $48,000 to Democrats in last year’s elections, or triple what it gave during the preceding four years.
Not coincidentally perhaps, it is Democrats who were prime sponsors of the latest payday legislation in both the GOP-controlled Senate and Democrat-controlled House.
“I’m not a fan of payday loans,” Sen. Marko Liias, the Lynnwood Democrat sponsoring Senate Bill 5899, argued. “But I think we’re now at a point where we’ve gone so far we are cutting off some people from accessing emergency funds.”
Liias may be right that people of low incomes need access to loans to carry themselves through financial tight spots.
But his bill allows a 15 percent origination fee, interest rates up to 36 percent, and a 7.5 percent monthly maintenance fee capped at $45 per month.
Attorney General Bob Ferguson pointed out these shortcomings in a letter he sent last month to Liias and Rep. Larry Springer, D-Kirkland. Springer sponsored a companion measure, House Bill 1922.
Ferguson said a $700 loan under the new law would cost $1,195 to repay — or $400 more than the $795 repayment under current rules. He noted that consumers already may convert payday loans to installment plans of up to 180 days with no additional fees, and that DFI reports that almost 15 percent of borrowers already do that.
There is one upside to Liias’ bill cited by Ferguson: It bans lenders from requiring a borrower to sign a post-dated check as security — or to approve a mandatory electronic payment plan — at the time of loan origination.
But overall there are too many flaws in these bills. That is why at least 70 consumer groups, AARP, advocates for low-income families, and Gov. Jay Inslee have opposed them.
Rep. Sam Hunt, D-Olympia, co-sponsored the House bill but is reconsidering — for good reason. “So ... I may vote against a bill that I signed onto. Mistakes happen,” Hunt said.
The Legislature should simply stop this legislation.