A controversial bill under consideration in the Washington House of Representatives could overturn some rules designed to protect people from predatory payday lenders.
Bill 1678 would repeal a year-old rule that prevents people from taking more than eight payday loans in a 12-month period, a move that the promoter of the bill, Rep. Steve Kirby, believes is necessary for prevent the flight to riskier Internet loans. But anti-poverty advocates say the bill will leave borrowers unprotected.
“The evidence seems to indicate that consumers are looking for more expensive, unregulated products,” said Kirby, a Democrat from Tacoma. He said the eight loan cap sends customers into “the wild west,” a world of unlicensed Internet lending where fees are higher and credit limits do not exist.
Under a 2009 law backed by Kirby, borrowers are limited to eight payday loans per year and can only borrow $ 700, or 30% of their monthly income, whichever is less, at any time. The measure also entitles borrowers to a payment plan at no additional cost if they cannot repay their loans on time.
Payday loans are short-term loans that borrowers pay with a post-dated check for the loan amount plus fees. When payment is due, the lender can cash the check or the borrower can pay cash and collect the check.
According to data from the State Department of Financial Institutions, payday loans increased from about 3 million total loans to about 1 million in 2010, when the law came into effect.
Since many internet lenders are unlicensed, no data is available on whether illegal lending activity has increased since the law was passed. Complaints against Internet lending companies increased 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.
Poverty advocates have said the 2009 law works and the legislature should focus on educating borrowers and tighter regulation of internet lenders rather than trying to solve the problem by lifting the loan limit.
“Let’s tackle the problem in a direct and targeted manner,” said Beverly Spears of the Statewide Poverty Action Network, referring to unlicensed internet lending. “Let’s build on the existing law and enact new protections for Internet lending. “
Because loans from unauthorized businesses are unenforceable and uncollectible under state law, she said lawmakers should focus on educating consumers so they know they do not have to repay predatory lenders.
Opponents of the bill have argued that without the eight loan limit, nothing prevents people who live paycheck to paycheck from entering a cycle of paying off a loan by borrowing money. money elsewhere.
“Please don’t let a new generation of struggling single employees learn their lesson the same way I do,” said Margaret Engle. Engle said she was able to repay her payday loans under an installment plan after the 2009 law was 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 hears complaints about financial practices in the state, but that the eight loan limit was never one of between them.
Kirby said the testimony against the bill came from groups who wanted payday loans to be eliminated entirely, but he said he believed they were a necessary line of credit for residents of the state.
“People need this product,” Kirby said. “It’s a very important industry to keep alive. “
He said he believed the cap on the amount of money borrowers can have at a specific time and the terms of the installment plan were adequate protections for borrowers.
According to data from the Public Disclosure Commission, Kirby received campaign contributions from some groups representing state lenders in 2010, including the Washington Collectors Association.
The bill was slated for a vote on Friday in the House of Financial Affairs and Services, but was withdrawn from the agenda. Kirby said he was confident he had enough votes to get it through committee and that he believed it would pass in the House. But he said he wanted to be sure the Senate acted on the measure before the committee took further action.