The Secret to Passing a Payday-Loan Reform Bill

Make sure everyone hates it.

Every year, bills pop up in Olympia to rein in the payday-loan industry. Rep. Sherry Appleton (D-Kitsap) has made an annual tradition of introducing a bill that would limit the interest rate these lenders can charge, capping it at 36 percent (down from fees equal to about 391 percent today). Not surprisingly, these attempts are vehemently opposed by the industry and often die in committee—as Appleton's did again this year—leaving everything pretty much status quo.But Rep. Sharon Nelson (D-Maury Island) has introduced a comprehensive industry reform bill this session that both sides in the payday-loan wars hate—so the thing actually has a shot at getting passed and signed.Nelson has a particular interest in the subject. Before being appointed to the legislature to replace Joe McDermott, who jumped to the state Senate in 2007, she created loan packages for Bank of America. Her bill, she says, "recognizes that for some folks, [payday lending] 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." Interest-rate caps, when passed in other states, have resulted in the industry simply picking up stakes and leaving.Nelson says she heard from leaders of various Latino organizations that payday lenders provide much-needed services. Ligia Velasquez, one of the planners of Hispanic Legislative Day and a board member at the Statewide Poverty Action Network, says the cheap check-cashing and wire transfers offered by payday lenders are valuable to many Latinos. (Still, Velasquez would like to see Appleton's interest-rate cap placed on the industry.) Cristobal Guillen, president of the Association of Washington State Hispanic Chambers of Commerce, testified at a Feb. 10 House hearing on Nelson's bill that payday lenders are some people's only source of credit. Guillen did not return phone messages left earlier this week, but his association's largest sponsor is Moneytree, the largest local check-cashing and payday-lending operation. Nelson says her bill is intended to walk a fine line between keeping the businesses open and protecting borrowers.Nelson's bill has four main parts. First, it would limit to eight the number of loans a person can take out during any calendar year. Second, it would set a maximum amount that customers could borrow at any one time: 30 percent of their monthly income or $700. Third, payday lenders would be required to offer a payment-plan option without additional fees to borrowers, giving them up to 90 days to pay debts up to $400, and 180 days for anything larger. Currently, the law requires the installment-plan option after four loans. Borrowers also wouldn't be able to take out another loan while on an installment plan. Finally, payday lenders would be required to establish a statewide database to track all borrowers: their incomes, how many loans they have outstanding, and whether any are on installment plans.Lenders hate the bill, even if it leaves interest rates alone. Dennis Bassford, CEO of Renton-based Moneytree, wonders why banks and retailers shouldn't have to maintain a similar statewide database for credit-card holders, who've also been known to get in pretty far over their heads."The question that I always ask rhetorically is 'What are the other products that should also be tracked?'," Bassford says.More disconcerting for Bassford is the number of different sections in the bill, most of which haven't been tried out in other states. "It creates an uncertainty for the future," he says. Four Moneytree stores in Washington have leases up this year, and Bassford says that if the legislation passes, it might not make sense to extend the leases for another five years.Other industry representatives claim the bill will drive smaller operations out of business. At a hearing on Monday before the Senate Committee on Labor, Commerce and Consumer Protection, where Nelson's bill is now being heard after passing the House on March 9, Kenneth Weaver, a Chehalis man with two payday-lending stores in central Washington, said his business might not be able to survive the new rules. He asked the legislators to consider letting capitalism work out interest rates and repayment plans. He said other stores in his area that have been more ruthless with customers have been forced out by operations like his that are willing to work with people having trouble paying back the small loans.Hating the bill from the other direction is Appleton, one of 10 House representatives who voted against the measure. She thinks eight loans a year is too many. She also wanted a mandatory 30-day gap between loans, as well as the interest-rate cap. Appleton says she'll keep pursuing these tighter controls in future sessions.But other industry opponents are grudgingly supporting the bill in the Senate, including the Washington Community Action Network and even King County Councilmember Larry Gossett. A Gossett representative read a letter to the committee on Monday offering support for the bill, but also calling for more stringent amendments. The committee is expected to vote on the bill next

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