State Sen. Lee Heider, R-Twin Falls, and Idaho Department of Finance officials will soon introduce right-minded legislation to reign in predatory payday lenders. We hope this time the rest of the Legislature jumps on board.
State lawmakers have repeatedly shirked their responsibility to curtail these businesses. Cities are now rising up against Boise’s inaction and mounting a local offensive against payday lenders.
The Caldwell City Council unanimously adopted an ordinance this month that essentially relegates any new predatory lenders to the city’s industrial outskirts. Burley and Idaho Falls are considering similar initiatives.
But the power of local government to get a handle on the firms is extremely limited.
Idaho Finance Director Gavin Gee said Friday that his department is using as a guide a recent recommendation by the Pew Research Center and a model freshly created by the state of Colorado that could bring an end to the legalized practice of predatory lending that feeds on a diet of fine print and customer distress. As it now stands, the average 14-day loan carries a 391 percent rate, says a report released in April by the federal Consumer Protection Financial Bureau.
“The reason they’ve been so popular is because they classically require very little information,” Gee said Friday. “There’s no credit check or requirements to prove the loan can be repaid.”
The result has been people — typically those making less than $31,000 a year — drowning in compounding debt. Unable to pay the first loan, they go get another across town. It’s a vicious, life-ruining cycle.
While Heider’s bill is yet to be written, there’s a good chance it will offer real reform of the destructive payday lending industry. It should follow Colorado’s lead, and Pew’s conclusions, and require payday lenders to adopt installment payment systems designed to keep borrowers from sinking underwater. We hope it requires panicked, cash-strapped borrowers to prove they can actually pay the loan back. It must cap interest rates and limit the number of times a loan can be rolled over. These steps would be real, meaningful reform. Half-measures won’t do.
Heider argues that the cities, armed only with the power of zoning laws, shouldn’t be trying to usurp state authority over payday lenders. Heider is right. The cities can’t truly stop the practice, but the actions of local governments should stand as a wake-up call to lawmakers that the problem can no longer be ignored. Quick cash is destroying too many of Idaho’s most vulnerable.
“We don’t want the Burleys, the Caldwells and the Idaho Falls to deal with it,” Heider said Thursday.
Idaho’s laws governing payday lenders are feeble compared with other states, merely limiting each loan to $1,000 or less.
Heider introduced a tough reform package last year, which died in committee because some lawmakers believed it would drive payday lenders out of Idaho. This time, Heider and the Finance Department are engaging the industry, in the hopes of finding support among the lenders themselves.
Caldwell’s action, if nothing else, should serve as a notice to lawmakers that this issue must be addressed in 2014. Otherwise, even more local governments will end up going it alone.