2013 Payday loan bill hurts the vulnerable, helps the lenders

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A bipartisan group of state senators is trying to undo the restrictions placed on high interest-rate payday lending four years ago. If passed, Senate Bill 5312 would once again permit payday le

nders to prey on our state’s poorest and most vulnerable citizens.

The bill should have died in committee, because it is so contrary to Washington state values. Instead, it cleared the Senate on a vote of 30 to 18. All the South Sound senators voted in favor, including Sens. Randi Becker, Karen Fraser, and Tim Sheldon.

Payday lenders profit on the misfortune of those who cannot pay their everyday expenses by offering advances on future paychecks at excessive rates of interest. Payday loans help fuel the downward spiral often associated with substance and gambling addictions.

The industry was getting out of hand in 2009, causing the Legislature to pass reforms that protected people from getting trapped in a cycle of inescapable debt.

Those reforms successfully reduced payday loan debt statewide by 75 percent.

But Senate Bill 5312, introduced by Democrat Sen. Steve Hobbs, would undermine the 2009 Payday Lending Reform Act by reclassifying payday lending as installment loans, and permitting loan costs of up to 220 percent. It would strip away the protective restrictions for military families under federal law, and make them eligible for these unreasonable high-interest loans.

The Seattle-based moneylender, Moneytree, is pressing legislators to allow this end-run around the 2009 restrictions because online money lending is cutting into its business, and an assertion that consumers want a longer period of time to pay back short-term loans.

But that’s no reason to expose our state’s most vulnerable to what the Statewide Poverty Action Network called “payday lending on steroids.”

It is a reason to attack predatory lending on a national scale, including the rampant online operators. Oregon Sen. Jeff Merkley has done just that. The Stopping Abuse and Fraud in Electronic Lending Act would shut down the most egregious schemes of the online payday industry.

Our state senators and Moneytree should support that effort, rather than reopening the floodgates in our state.

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One of the bill’s strongest critics, Sen. Sharon Nelson, says, “As a former banker, I view this legislation as a return to the dark days of predatory payday lending, and a money machine for those who profit on other’s indebtedness.”

According to the Pew Charitable Trusts, online loans will total 60 percent of the total payday loan market by 2016, almost doubling its share in 2011. Americans borrowed $13 billion on payday loans in 2011, up 120 percent from 2006.

We’re surprised that Democratic senators sponsored this bill. Perhaps they were under the false impression created by SB 5312’s supporters that it would generate new state revenue from licenses and fees. The state budget office, however, has said it would cost the state more to implement than the revenue it would generate.

Perhaps senators saw this as a consumer advocacy bill by creating more choice for individuals. But enabling bad financial choices will cost us all in the end.

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We understand that Moneytree wants to protect its business, but the Legislature should not enable one industry to succeed on the backs of low-income people trying to survive on a financial edge.