Every year bills pop up in Olympia to rein in the payday loan industry. Most are pushed by advocates like Rep. Sherry Appleton (D-Kitsap) who wants to cap annual interest rates at 36 percent, something that, when passed in other states, has resulted in the industry picking up stakes and leaving. The bills are, unsurprisingly, vehemently opposed by the industry itself and in some cases advocacy groups representing people who can't get a loan anywhere else. And every year these two sides battle it out until the bills die in committee and everything stays pretty much status quo.
Before being appointed to the legislature to replace Joe McDermott when he jumped to the Senate in 2007, Nelson created loan packages for Bank of America. So she knows a thing or two about lending. At the beginning of the session, she says, she wanted to come up with a way to rein in the payday loan business a little and help people caught in expensive repeat loan cycles get out of debt.
But it wasn't just the payday loan industry that opposed an interest rate cap, Nelson says. People came to her on behalf of immigrant Latino communities in particular to say that payday lenders were some people's only option if they suddenly needed a few hundred dollars. "[The bill] recognizes that for some folks, this works, and it also recognizes that for other folks, it does not work and we need to establish a program to help them get out of debt," Nelson explains.
Her bill has four main parts. First, it would cap the total number of loans a person can take out during any calendar year to eight. Second, borrowers getting the loans would also only be able to get 30 percent of their monthly income or $700, whichever is lower, meaning payday lenders would have to actually check. Third, payday lenders would automatically have to offer a payment plan option without additional fees to borrowers, giving them up to 90 days for debts up to $400 and 180 days for anything larger. Currently the law requires the installment plan option after four loans. You also wouldn't be able to get another loan while on an installment plan. That brings us to the final big piece--a statewide database that tracks all borrowers. The database would keep payday lenders from making small loans to customers that already have too many out or are on installments to pay off another one.
The lenders hate it. Dennis Bassford, CEO of Moneytree, starts with the criticism that the entire thing unfairly vilifies his industry--it's not like there's a statewide database for credit card holders. "The question that I always ask rhetorically is what are the other products that should also be tracked," he says. But more disconcerting for Bassford is the number of different pieces, most of which haven't been tried out in other states. "It creates an uncertainty for the future," he says.
Bassford says he just has no way of knowing how each piece will impact his bottom line. Four stores in Washington have a lease up this year and Bassford says he's just not sure if it makes sense to extend the leases for another five years on the off-chance the limits on loans and the installment plans cut too deeply into the bottom line.
On the other side, Appleton was one of 10 representatives who voted against the bill in the House on March 9. "I didn't think the bill went far enough," Appleton says, adding that eight loans a year is too high. She also wanted a mandatory 30 day gap between loans, not to mention an interest rate cap. Appleton says she'll keep pursuing the tighter controls in future sessions.
The bill is now in front of the Senate Committee on Labor and Commerce and Consumer Protection where it is scheduled for a hearing Monday morning. A staffer for chair Jeanne Kohl-Welles (D-Seattle) says the Senator is planning to push her committee and fellow senators to support the bill. "It's a good compromise," Kohl-Welles spokesperson says.