If the Legislature had an award for straight talk, state Rep. Sherry Appleton would be in the running.
Appleton is the Poulsbo Democrat who in previous years led the fight to cap payday lending’s annual percentage rate at 36 percent under the banner of consumer protection.
Such caps sound more than reasonable, but given the short-term nature of payday loans, a 36 percent cap is tantamount to a ban on payday lending. Payday lenders now make $15 on a $100 loan; under a 36 percent cap, they could charge only $1.38 for a two-week loan.
This year, Appleton has given up the masquerade. She’s sponsored House Bill 1425, legislation that would eliminate the 1995 laws that allow payday lending. The bill is titled, “Eliminating small loans.”
We’ll give her credit for calling her spade a spade, even if we don’t agree with her intent. Payday loans provide a legitimate option for people who need quick access to a few hundred bucks – and can be a cheaper alternative than bounced checks.
But they also can be credit traps for borrowers who aren’t able to repay the loans on time. Borrowers sometimes cannot repay the full amount owed on the due date, so they take out another loan to cover the first and ultimately wind up trapped in a string of loans whose interest and fees far exceed the original principal.
Unfortunately, the last time state lawmakers tried to tackle payday lending reform in 2007, compromise was nowhere to be seen and regulation was largely cast as an all-or- nothing proposition.
Legislators are back at it this year, and there’s more movement to the middle than Appleton’s bill would make it seem.
Anti-payday activists are supporting House Bill 1709 and Senate Bill 5750, which would extend the minimum term for payday loans, reduce loan fees and create more generous repayment plans for those borrowers who cannot repay their loans by their due dates.
The upshot is that lenders would be allowed to charge the equivalent of an annual percentage rate of 60 percent – a good deal more than 36 percent but still a far cry from the 390 percent that current payday lending fees amount to when annualized.
Other bills would attack the problem piecemeal – giving borrowers an additional chance to convert their loan to a payment plan or restricting borrowers’ ability to take out multiple payday loans or prohibiting “rollovers” that lock consumers into a cycle of debt.
Together, they might amount to something, but taken separately they lack oomph.
No true compromise has emerged yet, but the fact that there’s been movement bodes well – if only lawmakers will pressure payday lenders and consumer advocates to work toward consensus.
Pierce County has a big stake in this issue. The 29th District, which includes South Tacoma and Bridgeport Way, has had more payday lenders and more payday loan volume than any other district in the state.
Our legislators especially should be working to find the middle ground that provides prudent restraints on payday lending without strangling the industry.
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