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Published: Tuesday, April 16, 2013, 12:01 a.m.
Guest commentary / Payday loan legislation


Let's prevent return to predatory lending

Today lobbyists in Olympia are working to throw our families back into a spiral of debt under the guise of a new installment loan product. This product isn't needed because payday borrowers already have the right to a better, cheaper installment loan option.
Legislation recently passed by the Republican-controlled Senate and by the House Committee on Business and Financial Services opens the door for drastic growth of the payday lending industry by creating a product that some have nicknamed "payday lending on steroids."
Senate Bill 5312 was described to legislators as creating new, small installment loans with a maximum 36 percent interest.
At first glance that appeared to be reasonable and perhaps better than current payday loans. However, the real cost to our hardworking families skyrockets to 194 percent when you include the loan origination and monthly "maintenance" fees which are buried in the bill.
When the true cost of this product became clear, the military requested that their members be excluded from being able to use this new high interest rate product. That exemption is in the legislation but this product will trap other hard working families into a cycle of ongoing high rate debt. If this product is not good enough for the military, it is not good enough for anyone else.
To no one's surprise, this legislation is strongly backed by MoneyTree, one of the largest payday lenders in the country. In committee hearings, MoneyTree has been the only interest to testify in favor of the legislation as they promote this new product to the legislature. Consumer advocates and numerous other entities stand opposed.
So why is MoneyTree pushing this product?
We passed a comprehensive Payday Lending Reform Act four years ago. Prior to that legislation, working families took out these short-term, ultra-high-interest loans to pay for immediate expenses like rent, only to find themselves trapped in never ending debt.
The reforms passed in 2009 required that payday lenders give borrowers who are having difficulty repaying their loans three to six months of installment payments, interest free. With a chance to pay off their debt, Washingtonians did just that.
The $1.3 billion payday industry in our state shrank by 75 percent. Families escaped from payday loans and were able to financially build themselves back up. MoneyTree still has numerous outlets but the profits from payday lending have shrunk.
Let's be clear: payday lenders are allowed to charge 45 percent interest under the current payday lending installment loan plan. If MoneyTree and other lenders can't make a profit at such an incredibly high rate, they have a broken business model.
There is no justification for creating a new type of loan that will earn MoneyTree and other lenders 194 percent interest at the expense of our hardworking families. Passage of SB 5312 will do just that.
Supporters argue that high-interest loans are a lifeboat as the only form of credit available to some people, and with this legislation we are offering them and their communities an important new product. Frankly, we find that logic offensive.
Instead of a new product, MoneyTree needs to be up front with their customers. An installment loan plan under the existing Payday Lending Reform Act is available today – it just isn't as profitable as the new product they are promoting.
Now is the time to step up and once again firmly slam the door shut on predatory loans.
Sen. Sharon Nelson, D-Maury Island, is a former bank executive, is currently the assistant ranking member on the Senate Ways & Means Committee and serves on the Senate Financial Institutions, Housing and Insurance Committee. Rep. Cindy Ryu, D-Shoreline, is a former insurance agent, and serves as the Vice Chair of the House Business & Financial Services Committee.

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Herald Editorial Board

Jon Bauer, Opinion Editor: jbauer@heraldnet.com

Carol MacPherson, Editorial Writer: cmacpherson@heraldnet.com

Neal Pattison, Executive Editor: npattison@heraldnet.com

Josh O'Connor, Publisher: joconnor@heraldnet.com

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