State eyes limits on payday lenders

OLYMPIA – It seemed like such an easy solution.

Last April, faced with mounting medical bills, 44-year-old Sandra Miller went to a payday loan shop in Clarkston. For about $50 in fees and interest, she said, she took out a two-week loan of $300.

After two weeks, still struggling, the single mother of two went back. The clerk, she said, told her she could just pay the interest and roll over the debt for another two weeks.

“I thought ‘Oh, that’s great. I’ll just roll it over,’ ” Miller recalled recently.

But since she lives paycheck-to-paycheck on her job as a pet store manager, she never seemed to be able to come up with the $300. She kept paying the interest, and, trying to keep up with bills, went to other payday lenders.

“Long story short, I kept rolling them over and kept getting further and further behind,” she said.

Today, Miller owes $3,700 to seven payday lenders in both Washington and Idaho. She’s two and a half months behind on her rent, her 21-year-old van is falling apart, and she’s trying to shield her children, ages 11 and 13, from the landlord’s threats to evict her.

“I didn’t realize what these payday loans do to you,” she said.

A decade after Washington legalized short-term, high-interest “payday lending,” as an alternative to illegal loan sharking, the payday lending industry has mushroomed. In 2004, according to Washington’s Department of Financial Institutions, more than 3 million payday loans were made in the state – an 80 percent increase since 2000. The average loan was $375; the average fee on that loan was $50.

A recent study by two university professors, Christopher L. Peterson and Stephen Graves, found that Spokane County, with 55 outlets, has the state’s second-highest number of payday lenders per capita.

Legal-aid lawyers and advocates for the poor have long complained about payday lending, saying that the short-term loans are often rolled over into chronic, ultra-high-interest debts. Washington allows 15 percent interest on a two-week loan, which can translate into an annual rate as high as 391 percent.

In recent years, those traditional critics have gained a new ally: the U.S. Department of Defense. The study by Peterson and Graves found a strong correlation between payday lending shops and military bases. The Washington city with the highest per-capita number of such lenders, they found, was Lakewood, one mile from Fort Lewis.

“We as a nation cannot afford, nor should we condone, military members falling prey to payday lending,” lawmakers were told this week by Capt. T.J. Dargan, chief of staff for Navy Region Northwest, which includes 30,000 sailors. He called the loans “usury” and “predatory” and said that financially fragile military families are being “entrapped in a chronic borrowing cycle.”

Dargan said the department’s long-term goal is a cap on interest rates, probably around 36 percent a year.

“We’re not trying to put payday lenders out of business. The (Defense Department), if we don’t start regulating these payday lenders, will put them out of business. They will put them off-limits” to military members, said Rep. Sherry Appleton, D-Poulsbo.

She sponsored a bill this year to limit payday lender collection practices against military families. She’s also calling for a state study of how much interest and fees payday lenders really need to cover their business costs.

The industry, not surprisingly, is opposed to many of the new regulations being proposed. One bill suggests a statewide database, so lenders can quickly see how many other loans an applicant has.

Dennis Bassford, president of Seattle-based payday lender Money Tree, said there’s no need for such intrusion into the private finances of Washingtonians.

“What’s next?” he asked lawmakers. “Where does it end? Are we going to have a database for lottery tickets? Alcoholic beverages? Big Macs?”

He said it would be a mistake to pass a Senate bill capping annual percentage rates at 36 percent and limiting payday loans to $500 instead of the current $700. That would be a dime a day on a two-week loan of $100.

“The whole issue of payday lending revolves around choice,” Bassford told a Senate panel. “Are we going to provide consumers with choices, and let them make their own decisions? Or are we going to deny them choices, which would force them to use less-attractive alternatives.”

In Vancouver, 28-year-old real estate assistant Sarah Smith said she has taken out five payday loans in the past six months.

“I’m an educated person,” she said. “I make the choice to pay $15 on a $100 loan so I don’t get charged $35 in bank overdraft fees.”

The first one was last summer, she said, when she fled an abusive boyfriend. With no savings, she needed quick money to get an apartment.

“It’s just about survival,” she said. “You’ve got to do what you’ve got to do.”

Still, she said, the lenders should be forced to do a better job of telling people how the loans can stack up.

“It’s when you don’t pay it back on time (that) they start tacking on fees. That’s the killer,” she said. “People don’t understand what they’re getting into.”