BOISE – Idaho has the highest payday loan interest rates in the nation at 582 percent, according to a new study by the Pew Charitable Trusts.
The news comes after a payday loan reform bill that contains no caps on interest rates passed the Idaho Legislature this year amid much controversy; opponents said the bill, backed by major payday lenders, didn’t go far enough to reform the business in Idaho.
“Why not require lenders to offer a loan that fits within a borrower’s ability to repay from the start?” asked Nick Bourke, project director for the Pew Trusts. “We know through lots of research that … the vast majority of payday loan borrowers renew or repeat the loans for almost half the year. … We know that’s the problem.”
Washington’s average percentage rate is 192 percent, Bourke said, because of additional restrictions that state places on payday lending businesses. Idaho is one of just seven states with no limits on interest charges or fees.
The typical payday loan nationwide is a two-week loan for $375, with a $55 up-front fee, Pew found. The full principle plus the fee is due at the end of the two weeks, with no other charges.
But if the borrower can’t pay that full lump sum, which typically takes up more than a third of the borrower’s next paycheck, Bourke said, the borrower renews for another $55 fee, getting onto a never-ending cycle. “They go back and they borrow the money again in order to make ends meet,” he said.
In the end, Bourke said, “A typical payday borrower in this country pays $520 (in fees) by the time they get out of payday loan debt. That’s a lot more than the price tag that they see going in.”
Pew notes that 15 states cap annual percentage interest rates for payday loans at 36 percent. But none of those have any payday lenders.
“There is a common myth with our industry,” Trent Matson, director of government affairs for MoneyTree, told Idaho lawmakers in March. “The myth is that the industry likes to give more and more and more loans and impose more and more and more fees, and somehow we make more and more and more money. Well, this is an unsecured loan product. It is not a sustainable business model to issue loans that go unpaid. That’s just nonsensical.”
MoneyTree and other big payday loan firms backed this year’s Idaho legislation, SB 1314. It squeaked through the Idaho House by just one vote, passed the Senate 21-13, and Gov. Butch Otter signed it into law on March 26.
The new law, which takes effect July 1, limits borrowers taking out payday loans to an amount not to exceed 25 percent of their gross income, with the borrower to provide the proof of that; and requires lenders to offer borrowers who can’t repay their loans on time a once-a-year option for an extended payment plan without additional fees.
“These are progressive measures,” Matson said. “They provide safety nets and protections for consumers.”
Opponents of the bill ranged from consumer activist groups to the mayors of Caldwell and Wilder to the Society of St. Vincent DePaul, who said payday lending victimizes poor people, overcharges them and locks them into a cycle of debt.
Bourke said Colorado enacted reform legislation that required all such loans to run for a minimum of six months and offer affordable installment payments.
But Matson said that’s not a payday loan product. He said Idaho’s bill “maintains a viable, regulated industry.”
Ironically, many of the Idaho lawmakers who voted against SB 1314 said they thought the bill went too far to restrict the business. Sen. Todd Lakey, R-Nampa, said, “I don’t think it’s government’s role to protect people from themselves.”