Payday loan bills introduced to Washington Statehouse

OLYMPIA – It’s become an annual ritual in the Statehouse: low-income people and advocates descend on Olympia to blast payday loans. It’s too easy, they say, for desperate families to get trapped in a cycle of high-interest debt.

And every year, the bills tend to die in the same place: the committee headed by Rep. Steve Kirby, a Tacoma Democrat who defends the loans as a needed product for people who don’t qualify for credit cards or bank loans.

But this year, trying to break the impasse, Kirby is sponsoring nearly half a dozen bills in an effort to keep payday loans legal while making it easier to avoid getting trapped in debt.

“This is the year to address the problems within this industry,” Kirby said Tuesday. “And I intend to make a side career … out of hammering some sort of agreement” between the industry and its critics.

Among his proposals:

•Limiting the balance of all outstanding payday loans to 30 percent of a person’s gross monthly income.

•Making it easier for borrowers to convert a loan to a payment plan.

•Preventing a lender from charging more fees if he or she has lent someone a total of $700 in the past month.

•And trying to curtail harassment by payday lenders and their agents trying to collect unpaid loans.

Other lawmakers want tougher restrictions, such as a 36 percent interest cap. House Bill 1425, backed by 15 of Kirby’s colleagues, would flatly ban such loans. Any loan would have to comply with the state’s usury laws, which limit the interest on many types of loans to 12 percent a year.

The industry says such limits would drive them out of business and drive their customers to unregulated online loans.

“Here’s reality,” said lender Darrell Wells, who has offices in Olympia and Aberdeen. “If any one of these (interest-capping) bills becomes the law in Washington state, I will lay off my employees, I will terminate my leases and I will close my doors.”

Among those who testified Tuesday was Michael O’Hanlon, a Port Townsend retiree. After taking out a first payday loan and paying the $75 fee on the $500, he said, “I never did quite catch up.” He kept taking out new loans to repay the old ones, paying another $75 each time.

A formerly homeless woman, Jeanne Hendersen, had a similar experience. Working two jobs but needing some extra cash, she said, she borrowed $300. Two years later, she’d racked up $2,694 in fees, borrowing from one lender to pay another.

“I was borrowing from Peter to pay Paul … until I crashed,” she said.

James Brusselback, enforcement chief at the state Department of Financial Institutions, said complaints are relatively rare. But those that the agency does get, he said, often involve harassment by shops trying to collect on a loan.

“Some constraints need to be put back around the industry,” said Bob Cooper, with a social workers group. “… In polite terms, it’s called usury. I will utter the word: It’s called loansharking, pure and simple.”

The industry is embracing some of the changes. Dennis Bassford, the owner of Money Tree Inc., said he supports the limits on collection practices, the payment plan and limiting the total loans. He said he has some reservations with a system that Kirby wants to set up to track people taking out loans. “Why not lottery tickets?” Bassford asked. “Why not alcohol? Why not Big Macs?”

Payday lender Kevin McCarthy said working-class people need the option of easy-to-get small loans. “Our customers are rational, and understand the choices they’re making,” he said.