News Column

Payday Lending Bill Sees Criticism

February 13, 2014

By Laurie Welch, The Times-News, Twin Falls, Idaho



Feb. 13--BURLEY -- An Idaho group that wants payday lending restrictions added to Idaho's law books are disappointed by a bill introduced to the Senate last week.

The bill is headed for a full hearing.

"We will be there for the testimony on this bill," said Terri Sterling, executive director of Idaho Community Action Network, a group that is working to put state and city laws in place to protect consumers from payday lenders. "And we will thank them (the Legislators) for their efforts and tell them this is not the way to fix this."

Typically, payday loans offer the borrower two weeks of credit, with payment in full due on the borrower's next payday at annual interest rates sometimes reaching 400 percent. Often the borrower is indebted for months struggling to repay the loan.

Proponents say that payday loans are a useful tool for consumers who lack access to conventional banking services. Others say they overburden people who are already struggling to pay their bills.

Meaningful Reform?

The bill, S1314, introduced by state Sen. Lee Heider, R-Twin Falls, would give borrowers the option of dividing the loan into four payments instead of paying the sum back all at once. Once on the extended payment plan, lenders would be blocked from adding additional interest and fees onto the remaining balance. The bill would limit loan amounts to 25 percent of a borrower's monthly income and prevent the lending companies from presenting the borrower's check more than twice for deposit.

Heider did not respond Wednesday to Times-News requests to discuss the bill.

Nick Bourke, The Pew Charitable Trusts' director of The Small Dollar Loans Project said Idaho's bill "will not enact meaningful change."

The Pew Charitable Trusts is an independent nonprofit organization that works to improve public policy.

Bourke said payday loans are "fundamentally unaffordable" and "the draft bill does not address that."

Ways to make the loans more affordable should include capping the interest rates.

Penny Paoli, branch manager of Quik Cash in Burley, said placing a cap on interest rates could put the company out of business.

"It would also take away credit from people that don't have the means to get it elsewhere," she said.

Bourke said if a state chooses too low of an interest cap, it can put lenders out of business. But if the state chooses a cap wisely, there will still be access to these types of loans for consumers, just fewer lenders who have to play by the new rules, Bourke said.

Sterling said ICAN recommends a bill modeled after Colorado's payday lending law, which caps the interest rate the companies can charge at 45 percent. Colorado also requires a six-month repayment period and sets limits on loans and fees.

"While 45 percent interest seems high, right now their rates are unregulated," said Sterling.

Predatory or Nondiscriminatory?

Paoli said payday-type loans were designed as an option for some people to meet unexpected expenses without writing a bad check.

Using annualized percentage rates to evaluate these types of loans is misleading, she said. Short-term loans should be compared to the real-world alternatives such as insufficient funds check fees and the credit damage associated with such alternatives.

"Some people say we're preying on Hispanic people and the poor. But, we don't want to be discriminatory to our customers either. Everyone is welcome here," said Paoli.

She said her office has Spanish-speaking employees to make sure everyone understands the terms of the loans and the company works with customers who default on their loans.

"Everyone is entitled to credit not just a select few who can afford it," Paoli said.

A Focus on City Laws

Sterling said Heider's bill follows the payday lending industry's best practices.

"It's nothing more than that and it undermines any type of solid reform," Sterling said.

Idaho is among the least restrictive state in the United States for payday lending laws. Some states limit these types of loans to a few hundred dollars; have fee caps and outright bans on payday lenders. Idaho limits loans to $1,000, has no fee caps and has more than 250 licensed payday lenders.

Sterling said ICAN will continue its efforts to convince city leaders in the state to enact laws restricting short-term lending.

"Many city leaders recognize that the triple-digit interest rates are detrimental to our communities," said Sterling.

The Caldwell City Council passed a zoning ordinance in December 2013 to prohibit new payday loan businesses in commercial areas, relegating them to manufacturing and light industrial zones. If new payday lenders want to open elsewhere in Caldwell, they must apply for a special-use permit.

Sterling understands the payday lending issue first-hand as a former college student and mother who was lured into the debt trap.

"I've been that person," Sterling said.

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(c)2014 The Times-News (Twin Falls, Idaho)

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