A new payday lending bill before the House Commerce Committee would threaten protections for struggling Pennsylvanians. The Commonwealth has one of the strongest laws in the country to guard against predatory lending, with a cap on fees and interest that has kept high-cost payday lenders at bay. Our law saves residents more than $272 million each year in fees that would otherwise be drained if payday lenders were allowed to operate here. However, a new House bill (HB 2429), “An act regulating credit services,” would jeopardize those savings by opening the door to predatory payday lenders in Pennsylvania.
If passed, the bill would allow payday lenders to evade the state’s strong interest rate cap by posing as loan brokers in order to charge unlimited fees and make triple-digit interest rate loans.
If your lawmaker is on the House Commerce Committee (listed below) please contact him or her and urge rejection of this bill. You can find your lawmaker’s contact information here.
If you call, please let us know by clicking here.
Payday Lenders’ Credit Services Organizations (“CSO”) Loophole
Under changes allowed by HB 2429, payday lenders pose as brokers under state credit repair or credit services laws. HB2429 explicitly would create a loophole in our state lending law by providing that the broker fee is not considered interest. Payday lenders exploit similar loopholes in several other states and become credit services organizations (CSOs) for the sole purpose of evading interest rate caps that would otherwise prevent debt trap loans.
Under these changes, lenders charge the maximum interest rate allowed on the loan plus an additional “broker” fee, often ranging from $15 to $25 per $100, resulting in loans with an effective annual percentage rate (APR) of more than 300 percent.
Payday lenders employ this scheme in Ohio and Texas, so we don’t have to guess at the impact of these loans. We already know: a debt trap. In both stsates, more than 80 percent of payday loans are taken out within two weeks of a previous loan being repaid. Borrowers become caught in high-cost, long-term debt, leading to a cascade of financial harms, including defaults on other bills, overdrafts and the loss of bank accounts, and bankruptcy. For the individual, whether the payday lender makes the loan directly or uses a CSO brokering model to evade existing protections, the result is the same: loans with triple-digit interest rates secured by the lender’s direct access to the borrower’s account that results in a long-term debt trap. HB2429 puts no limit on the amount or length of the loan or the fees that payday lenders, acting as “CSO” brokers, may charge.
Over the past six years that payday lenders have tried to weaken our state law, they repeatedly try to put a new wrapper on their same destructive legislative package. HB2429 is yet another sneak attack to make high-cost loans in Pennsylvania, in circumvention of our rate cap. LAMPa has been working with more than 100 other Pennsylvania groups for the last several years to keep these predatory loans out of our state.
Read the letter faith organizations, including LAMPa, submitted to lawmakers: Faith Based Opposition to HB 2429
House Commerce Committee:
Majority:
