Read a Pacific Northwest, liberal perspective on world, national, and local politics. From majestic Redmond, Washington - the Northwest Progressive Institute Official Blog.

Friday, February 02, 2007

Time to crack down on predatory lending

In recent years, citizens across the Evergreen State have witnessed a proliferation of payday lending outlets such as MoneyTree in neighborhood after neighborhood. These chains are reaping enormous profits at the expense of working families who are tricked by the lure of instant money.

Payday lending (which is also referred to as cash advance) is essentially the practice of using a post-dated check or checking account information as collateral for a short-term loan. To qualify, borrowers need only some form of identification (like a driver's license), a checking account, and an income from a job (or government benefits - like Social Security or disability payments).

According to the Center for Responsible Lending, payday lenders cost American families $4.2 billion every year in predatory fees.

It's appalling, but the minimum charge for these loans, fifteen dollars per $100, equates to a 390% annual percentage rate, or APR - that's multiplied by 26 paydays! Incredibly, only 2.5% of payday lending chains' customers stop at just one loan. Most customers average 5 to 10 loans - up to a 1,800% APR.

Predatory lending is the practice of preying on customers who lack good credit. Taking advantage of their financial situation, predatory lenders lure their customers into a vicious cycle whereby the customer has to keep taking out loans while the chain profits and makes money off of their misfortune. (The State Department of Financial Institutions, recognizing the danger, has acted to warn consumers of getting caught up in such a cycle).

Payday lenders won't hesitate to loan to people getting Social Security disability checks of a few hundred dollars a month - not enough to live on, much less give away $15 per $100. That's because there's no underwriting, no evaluation of the person's ability to repay the loan. The Statewide Poverty Action Network has a report on how one consumer was unlucky enough to become pulled into the cycle.

Unfortunately, Sen. Margarita Prentice of 11th LD (and the heavyweight Chair of the Ways and Means Committee), strongly supports this business. Why? Because, she says, people with poor credit need access to small (and instant) loans.

That's a weak argument. If payday lending is such a critical industry, we want to know what low and middle income families did before this business sprang up in the 1990s. What do families in the eleven states where payday loans are illegal do?

Prentice's support couldn't have anything to do with the fact that MoneyTree is headquartered in her district, or that its owners and employees have donated heavily to her campaigns for public office, or that they have sponsored fundraisers for her, or that MoneyTree's lobbyist chaired her campaign - could it?

Oh wait...Senator Prentice doesn't just support this awful business, she actually wrote the legislation that made the industry possible in this state back in 1995. By refusing to help fix the problem she played a huge part in creating, Prentice is sending a clear message - she doesn't really believe in progressive values.

House Bill 1020, sponsored by Representative Sherry Appleton, would cap the interest rate at 36%. Congress passed a 36% cap last October for all military and dependents that takes effect in October 2007.

(Payday lenders are often clustered around military bases and neighborhoods with a significant number of minority residents. The Washington State Budget & Policy Center has a map of payday lenders in Washington State worth checking out here - it's part of their High Interest, Lost Opportunity report).

If our Legislature doesn't act, we will have a two-tier system in our state, a cap for the military and usurious rates for the rest of us.

Readers, please call or email your legislators to express support for this bill. (Be sure to put the bill number and "payday loans" in the subject line). Because of Sen. Prentice's opposition, legislation will need significant attention in the Senate to avoid a quiet and unfortunate death.

In the House, the obstacle is House Insurance, Financial Services and Consumer Protection Committee Chairman Steve Kirby, who has effectively killed Appleton's bill by not allowing it to have a public hearing. Kirby has introduced his own proposal, which essentially maintains the status quo while appearing to look like reform.

What is he afraid of? Why won't he allow HB 1020 to have a hearing? Steve Kirby has not yet supplied an answer to that question that makes any sense. Perhaps unsurprisingly, Kirby received contributions of $1,200 each from MoneyTree's top two executives for his last reelection campaign.

Please contact Representative Kirby's office and protest his decision to prevent Sherry Appleton's bill from having a public hearing:
432 John L. O'Brien Building
PO Box 40600
Olympia, WA 98504-0600

Phone: 360-786-7996
Constituent Email Form (use this if you live in the 29th LD)
The all-purpose Legislative Hotline number is 1-800-562-6000.

Use it to find your legislator, talk to your legislator, get their email address, or get an update on the bill's status.

More information on House Bill 1020 and the effort to crack down on unethical lending is available from the Communities Against Payday Predators coalition.

<< Home