We had high hopes when state Sen. Lee Heider said he would again push for regulation of the payday lending industry. To say we’re disappointed after seeing the bill is an understatement.
Heider’s renewed effort came on the heels of a recent Pew Charitable Trust report that showed how damaging unmitigated payday lenders are to cash-strapped communities. They prey on those who can’t pay them back, charge huge interest rates and fees, and bury people in a morass of perpetual borrowing.
Idaho Finance Director Gavin Gee told us in December he hoped Heider’s bill would mirror Colorado’s lauded 2010 law, which essentially banned traditional payday loans and forced the businesses to become installment lenders. Colorado lawmakers capped the maximum interest, limited the number of times a loan can be rolled over and mandated an “ability to repay” check before the cash was handed over.
They’ve effectively saved their most vulnerable citizens from predatory lenders who feed off the weak.
Heider’s bill is a limp stand in. We’re now unsure of the sincerity of the Twin Falls Republicans’ call to rein in the cash advance industry.
“If they really wanted to tackle this, they would address the ability-to-pay issue,” said Nick Bourke, director of Pew’s Safe Small-Dollar Loans Research Project.
Heider’s bill leaves lenders with all the power. It gives borrowers the option to break payment plans into four parts and merely limits a maximum loan to 25 percent of the borrowers monthly income. This isn’t meaningful regulation. It’s a paper-tiger handout to an industry that currently charges Idahoans an average annual interest rate of 582 percent, one of the highest rates in the country. It’s a gift to an industry that relies on peoples’ inability to pay and colludes to provide loans to borrowers frantically searching for cash to get out from under previous cash advances.
The payday loan industry insists that real oversight would leave thousands of Idaho’s poor without access to credit, an especially powerful attack in a state that strives to be business friendly.
“It would also take away credit from people that don’t have the means to get it elsewhere,” said Penny Paoli, branch manager of Quik Cash in Burley.
But Colorado’s example shows how much smoke the payday loan lobby is blowing.
The number of licensed payday lenders has indeed dropped since Colorado cracked down. There were 287 cash advance lenders in the state in 2012, down from 505 in 2009, according to a report issued late last year by the Colorado Attorney General’s Office. But the vast majority of Coloradans still live within five miles of a lending site, while fees have crashed and a huge number of loans are now being repaid early. Reform is working in the Centennial State, though Carolyn Tyler, a spokeswoman for Colorado’s Attorney General’s Office, notes that the darker side of the lending industry has moved online since the crackdown, keeping state prosecutors busy.
“It’s a bit of a whack-a-mole,” she said.
Heider hasn’t returned repeated calls for comment. But we’re now convinced that his motivations are more about stemming the flow of local governments striking out and attempting to regulate predatory lenders on their own. We suspect Heider’s bill is a smoke screen intended to dupe the federal Consumer Financial Protection Bureau, which is mulling a nationwide crackdown.
Too many Idahoans with few options are victimized every day by predatory lenders. It’s a shame that Heider and his colleagues don’t have the guts to do anything about it.