Payday Lenders Thwarted For Now
Another attempt at passing a payday lending bill, HB 2429, was recently thwarted in June. Official word came through on June 19 that the House Commerce Committee vote was cancelled because the payday lenders didn’t have the votes to get it out of Committee. Thank you to everyone who worked to keep this bill off the floor.
The effort to keep this bill at bay is not over. The Chairman of the House Commerce Committee would like to hold a hearing over the summer on the bill. LAMPa will update information on a hearing as it becomes available.
Installment loans, unlike payday loans, are paid back over time instead of in one lump payment. But that doesn’t make them any safer. In fact, the draft bill has a deceptive interest rate that could reach as high as 200-300% and would allow for borrowers to take out an unlimited number of loans at once.
Pennsylvania 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.
This year, as in several years past, payday lenders are pushing a new scheme that would let them get around our consumer protections. This time it is the “CSO” scheme, which would allow them to charge a broker fee that is not calculated under the interest rate. This fee would legalize loans with effective annual interest rates (APR) over 300%. Payday lenders use the CSO scheme in Ohio and Texas to evade interest rate caps in those states. In both states, customers are routinely caught in long-term debt traps – more than 80% of loans are taken out within two weeks of a previous loan being repaid. In Texas, Check-N-Go uses the scheme to make loans carrying APR’s over 660%!
Payday lending is modern-day usury. Schemes like these are wolves in sheep’s clothing. They exploit people facing financial emergency, enriching the lender while failing to offer a sustainable solution to the person in need. All major religious traditions share a deep opposition to usury. For example, the Christian and Jewish scriptures counsel specific care when lending to those who are poor. “Do not rob the poor because they are poor,” Proverbs 22:22
Beyond the moral case, the devastating impact that legalizing predatory payday loans will have on the communities and congregants we serve is abundantly clear. In communities with payday loan storefronts, churches and social services report strains on local food pantries and charitable emergency relief services. Rather than offering a bridge to financial security, payday loans actually make financial problems worse, leading to increased food stamp usage, delinquency on other bills and obligations, and eventually bankruptcy.
High-cost payday lending is far from a financial solution for households but rather the cause of greater financial problems.
We need to be providing pathways out of poverty and dependency for our most vulnerable families, not sinking them further into debt. Today, Pennsylvania’s laws are considered among the strongest in the country to protect against this type of abusive lending. We ask that Pennsylvania legislators remain steadfast in upholding, not weakening, our current laws in order to keep our communities free from predatory lending practices. Stay tuned as we move into the fall and the legislators return to session.