Latest payday-loan bills focus on more education, oversight

OLYMPIA — Two state lawmakers who once sparred over payday-lending legislation are now working together on a more measured approach to regulating the industry.

State Reps. Sherry Appleton and Steve Kirby are co-sponsoring bills that would create new financial-literacy programs and lay the groundwork for a database to track loans.

Appleton, D-Poulsbo, originally sponsored a bill that would cap payday-loan interest rates at 36 percent annually, a measure that lenders said would put them out of business.

Kirby, D-Tacoma, killed the proposal as chair of the House Insurance, Financial Services and Consumer Protection Committee.

Their two new bills were heard Thursday in Kirby's committee.

House Bill 2231 would require lenders to pay a 25-cent per-loan surcharge to fund financial-literacy programs to educate borrowers. HB 2258 would instruct the Department of Financial Institutions to study the merits of a database to track loans.

One of the chief proponents of overhauling the payday-loan industry, Communities Against Payday Predators, or CAPP, boycotted the hearing.

"None of the bills go to the real core of the problem of payday lending. They kind of nibble at the edges," said CAPP spokesman Aaron Toso.

Critics say payday lenders charge excessive interest rates and trap borrowers in a cycle of debt as they take out new loans to pay off old ones.

Two other payday-lending bills also received hearings Thursday. One would set a minimum loan term of 24 days; now the only limit is a maximum of 45 days. The other bill would add a 25-cent per-loan surcharge to fund more oversight of the industry.

Payday lenders offer short-term loans of up to $700 with interest rates that reach 391 percent annually. A borrower writes a post-dated check for the amount of the loan plus interest or fees. When the loan is due, the lender cashes the check or is paid in some other fashion.

With CAPP absent, most of Thursday's testimony was delivered by the payday-loan industry against the proposed surcharges and minimum loan terms.

"If they cannot achieve an outright ban of our industry, they will try to tax us out of existence," said Darrel Wells, owner of Paycheck Financial Services.

Wells said the average payday lending branch makes about $2,000 a month, leaving no room in the profit margin for the 25-cent surcharges.

Deb Bortner, the Department of Financial Institutions' director of consumer services, said the department supports both surcharge bills and needs more personnel to monitor the industry.

In response to all of the bills, Money Tree CEO Dennis Bassford said lawmakers and critics are underestimating his customers. "They are rational, responsible people who have made the decision to get a payday loan," he said.

Elliott Wilson: 360-236-8169 or ewilson@seattletimes.com