Olympia looks at payday lending, again

Olympia looks at payday lending, again

	Published : Tue, 13 Feb 2007 17:10 By : Agencies Print this Story

SEATTLE (AP) - Unhappy with the practices of short-term lenders, Washington state lawmakers have introduced several bills to curtail the number of people caught in a cycle of revolving debt.

The catch is, legislators in Olympia have different views on just how to do that, with some arguing for more restrictions on the industry and others saying there needs to be compromise.

So-called 'payday lending' was authorized in Washington state in 1995 -- allowing people to borrow against their next paycheck at high interest rates. A decade later, there were more than 715 short-term lenders in the state -- mostly concentrated in western Washington, according to an analysis by the Brookings Institution. Consumers paid $174 million in fees on $1.4 billion worth of loans in 2005, the group said.

Industry officials contend short-term loans help people who need cash in a hurry. But consumer advocates say all working families need the same protections offered in a new federal law that caps annual interest rates and fees at 36 percent for service members and their families. That law takes effect in October.

'We are only asking the Legislature to extend the protections for military families to all working families,' said Karen Deal, political director for the United Food and Commercial Workers Local 21, a coalition of 30,000 retail, health care and laundry service workers.

Rep. Sherry Appleton, D-Poulsbo, has introduced two bills that she says will better protect the public.

Currently, lenders provide short-term loans, typically around $500. Although most people pay about $64 for one such loan, Appleton said, others have paid up to $300, or about 60 percent, in interest.

'This type of percentage rate is usury, and we don't do usury anymore in this country,' she said.

House Bill 1020 would cap interest rates at 36 percent annually and set a minimum-loan term of 90 days. The measure also asks the state Department of Financial Institutions to study the use of a statewide database to track and limit loans.

Appleton's second measure, House Bill 1021, would defer loan payments for deployed service members and restrict payday lenders from harassing military borrowers.

'We are not trying to put the industry out of business, just trying to make if fair for everybody,' Appleton said.

The industry is interested in working with legislators on how best to protect consumers, said Steven Schlein, a spokesman for Community Financial Services Association of America, a trade group based in Washington, D.C.

However, he said a 36 percent cap would not allow short-term lenders to stay in business.

'Obviously, the industry can't pay the electric bill at stores at that rate,' Schlein said.

A proposal sponsored by Rep. Steve Kirby, D-Tacoma, is less restrictive than Appleton's, which he believes would ultimately drive payday lending out of Washington state.

He said payday lenders currently earn $15 on a $100, two-week loan. Under Appleton's proposal, they could charge only $1.38.

'It basically cuts off access to people who legitimately need' short-term loans, Kirby said of Appleton's bills.

His measure, House Bill 1817, would leave interest rates unchanged but give borrowers, at no cost, the option once a year to establish a 60-day payment plan -- rather than just two weeks -- to pay back a loan. The loan would be paid back in four installments or more.

In the past, Kirby said, neither payday lenders nor consumer advocates have been willing to budge on finding a solution. He said he's committed to striking a balance that satisfies both.

'My job is to figure out a way to allow them to stay in business and not hurt people,' said Kirby, chairman of the House Insurance, Financial Services and Consumer Protection Committee, which plans a hearing on the bills Tuesday.

Kirby has said if Appleton isn't willing to compromise, her proposals won't be offered in committee.

'If she just wants her bill or no bill, that's fine. I just won't hear her bills,' he said.

Appleton contends most people who use payday lenders average seven to 11 loans per year, and that Kirby's measure would be little help.

'We have to change the percentage rate,' she said. 'If we can't change the percent rate I don't think that we will be able to compromise.'

Kirby's threat to kill Appleton's measure outraged consumer advocates, who argue that his bill is an industry proposal that does nothing to protect consumers.

'We are pushing for real reform to give consumers protection from predatory payday lending,' said Maya Baxter, campaign manager for Communities Against Payday Predators, a coalition of labor, human services and faith-based organizations backing the measure by Appleton. 'The reforms that Rep. Kirby is proposing are equivalent to treating cancer with cough syrup.'