Washington state passed some of the nation’s strongest payday loan reforms in 2009. But now a group of lawmakers want to scrap those reforms in favor of a proposal backed by Moneytree, a local payday lender.
The rule changes they are seeking limit the size and frequency of payday loans and provide a free installment plan option to help borrowers who cannot repay their loan when due.
According to Financial Institutions Department data, these reforms are hitting payday lenders hard. In fact, before the reforms took effect, payday loans were available at 603 locations across Washington, and lenders issued more than $1.3 billion in loans annually. Last year there were only 173 locations and it was a $331 million industry.
Now a proposal, sponsored by Rep. larry springerD-Kirkland and Sen. Marko LiiasD-Lynnwood, would replace the payday loan system in Washington with a “small consumer installment loan” system that would pave the way for lenders like Moneytree to start offering 6-12 month loans with effective interest rates up to 213%.
The proposed law would also increase the maximum loan size from $700 to $1,000 and remove the current eight-loan cap, removing the circuit breaker preventing borrowers from getting trapped in a cycle of debt.
Also, instead of the easy-to-understand payday loans we have now, the new loans would have a much more complex fee structure consisting of a 15% amortized origination fee, a 7.5% monthly maintenance fee, and 36% annual fee. interest rate.
“It’s the world upside down, after years of working on payroll reforms that finally worked in Washington, that lawmakers would reject this law and replace it with one created by Moneytree. says Bruce Neas, an attorney with Columbia Legal Services, a group that provides legal assistance to low-income clients.
Proponents say the new system could save borrowers money. And they’re technically right, since interest and fees accrue over the life of the loan. However, a loan would need to be repaid in about five weeks or less for that to happen, and that seems highly unlikely. In Colorado, which offers a similar installment loan product, the average loan is carried for 99 days. Additionally, according to the National Consumer Law Center, Colorado’s “loan reversal” has led borrowers to go into debt an average of 333 days a year, or about 10.9 months.
While many consumer advocates have spoken out against the proposal, as well as payday loan reform hawks like Sen. Sharon Nelson, D-Maury Island, and even the state’s attorney general — few voiced support. In fact, in recent committee hearings on the proposal, only four people testified on its behalf:
Denis BassfordCEO of Moneytree;
Denis SchulCEO of the commercial payday loan organization known as the Consumer Financial Services Association of America;
Representative Larry Springermain sponsor of the proposal and recipient of $2,850 in campaign contributions from Moneytree executives;
Senator Marko Liiasprincipal senatorial sponsor of the proposal and recipient of $3,800 in campaign contributions from Moneytree executives.
Springer and Liias aren’t the only state lawmakers Moneytree executives have supported with campaign contributions, however. Over the past two years, Moneytree executives have contributed $95,100 in the Washington State Legislature races.
At least 65% of the money went to Republicans and the Majority Coalition Caucus. Which is expected, since Republicans have been staunch supporters of Moneytree in the past. When a similar proposal was introduced in the Senate two years ago, only one Republican voted against it.
More telling is where the remaining money went. From $33,150 Moneytree gave the Democrats, $20,500 went to 11 of the proposal’s 16 Democratic House sponsors and $5,700 went to two of the four Democratic Senate sponsors.
Both Senate and lodge versions of the proposal cleared their first major hurdles as they left the political committees. The bills must now be reviewed by their respective chamber’s rules committee. The Senate version appears to be the most likely to move to a floor vote first, since the majority Republican coalition caucus controls the Senate.
Whichever bill goes first, payday lenders undoubtedly want it to happen soon.
The Consumer Financial Protection Bureau, created by Congress in response to the Great Recession, is about to release their initial draft regulations for payday lenders. Although the agency’s deliberations are private, it is widely believed that the rules will clamp down on the number and size of loans payday lenders can make.
These rules may well affect Moneytree and other payday lenders in Washington.
Where possible, payday lenders could see their profits shrink. Unless Washington abandons its current system in favor of a single carefully crafted by payday lenders seeking to avoid federal regulators.