Lee Heider is a man of his word.
When he visited the Times-News editorial board during his campaign, the would-be
senator promised to bring legislation to Boise that would protect the most vulnerable among us. And this week, Sen. Lee Heider called a joint press conference with the Idaho Community Action Network to share his proposal for legislation that would cap interest rates for payday loans at 36 percent.
If Heider’s proposed legislation makes it to the floor, passes and becomes law, Idaho will join 17
other states in capping interest rates for payday lenders. In 2010, Montana voters passed a measure that capped the annual interest rate for payday loans at 36 percent. But in Idaho, there is no cap on interest rates and Idaho does not cap how many payday loans a borrower can take out from multiple lenders.
Payday loans fill a niche for people without credit histories or with poor credit histories — people who cannot qualify for a traditional loan or a credit card. They offer short-term, small amount loans to high-risk borrowers — something traditional banks and credit unions do not offer.
Payday loans help someone out in a pinch, but they can also create a cycle of debt if they are not paid off immediately. There’s obviously a market for payday loans in Idaho and the Magic Valley. The 2011 Dex phone directory lists 17 payday loan business in the Magic Valley — 10 of them in Twin Falls, three in Burley and Jerome and one in Buhl. In 2010, Idaho payday lenders awarded 499,704 loans for a combined $185.3 million, according to the state
finance department’s annual lending report.
A 36 percent cap is still high, Heider admitted at his press conference this week, but it pales in comparison to the unregulated interest rates of as high as 500 percent annually in some locations, he said. (That triple-digit annual interest rate is calculated by looking at a borrower who took a year to pay of the loan, applying the fee for a two-week loan across all two-week periods in a year. In theory, payday loans should only be for two weeks. In practice, that’s not always the case.) Is it the state’s place to protect people from their own poor financial choices? Heider says it is and, in this case, we agree. Lending practices among credit card companies, banks and credit unions have been regulated to level the playing field for consumers. Why shouldn’t similar protections be in place for high-risk borrowers?
Putting an annual cap of 36 percent on interest rates for these loans is a sound approach to this legislation. It is high enough that it still allows the payday loan business to make a profit, but not so high that that profit dooms borrowers to an extended period of indentured servitude or financial ruin.
Heider said he was inspired to act after one of his employees struggled after taking out a loan with a high interest rate. “That’s when my eyes were opened to the cycle people get into when they take out payday loans,” he said.
Heider’s proposal is similar to one introduced last year. That bill, co-sponsored by Rep. Elaine Smith, D-Pocatello, never made it out of committee.
Hopefully, the Republicans will have better luck.