Working families deserve fair deal on payday loans

Lawmakers say new law prevents small loans
from snowballing into financial disasters

February 10, 2009

OLYMPIA -- Would you take out a second full mortgage because you fell behind on your house payments? Nobody would suggest that. But it's standard practice in payday lending . If you can't repay the loan on time, they give you another full loan, then another, and another. College students who only meant to borrow $400 to fix their car wind up with a loan for $1,600 and crippling interest they can never repay.
The Fair Loan Act of 2009 is meant to give working people a fair deal on payday loans. On Tuesday, Feb. 10, the Financial Institutions and Insurance Committee held a public hearing on the proposed law.
"Some payday lenders do a good job of not putting customers in a financial trap," said Rep. Sharon Nelson (D-Maury Island), a former banker and author of House Bill 1709. "This law is needed because there are too many predatory lenders who make their money by piling loan after loan on the backs of working people when there's no real chance for them to escape the debt."
Almost 90 percent of payday loans go to people with five or more loans a year, Nelson said.
The new law would reform the structure of these loans. Instead of a maximum of 45 days to repay a loan, which leads to taking new loans to pay off earlier ones, the minimum payoff date would be 60 days.
"The growth of payday lending is a big reason why citizens in Washington have one of the highest debt rates in the nation," Nelson said after the hearing. "With more families hurting and out of work, it's time to tackle this problem."
Rep. Tina Orwall (D-Normandy Park) said she co-sponsored the bill because it offers common-sense solutions to this problem.
"Under this law, instead of being forced to take out a new loan to pay off the old one, you'd get a payment plan," Orwall said. "You'd get a chance to pay off your debt instead of having your debt doubled and doubled until your finances collapse. The federal government knows the damage payday loans can cause. That's why they capped the interest charged to GI's to 36 percent a year. I believe it's unreasonable that ordinary citizens can still be charged up to 2,700 percent a year."
Nelson said she's trying to mend payday lending, not end it.
"Some lawmakers want to abolish payday loans entirely," Nelson said. "We're not pushing for that. There's a place for payday lending. It can be a quick way to get a small loan that your bank wouldn't do. The only thing we're trying to do is make things fair, so these tiny loans don't transform into financial nightmares."