Legislature approves payday-lending rules

It took two close votes in the state Senate and a firm stance from the House for the Washington Legislature to approve a bill imposing tighter regulations on the payday-lending industry.

Last week, senators voted to strip the House bill of regulations that proponents had described as a compromise between the payday-lending industry and consumer advocates. The House rejected the Senate's amendment and asked the upper chamber to drop the changes.

In a 25-24 vote on Wednesday, the Senate rejected the House's request, sending the measure back to the lower chamber unchanged. The bill appeared doomed.

But just minutes later, in a surprise move, the House voted to send the bill back to the Senate, and after some political maneuvering senators stripped their own amendment and approved the House version of the bill. The measure cleared the Senate on a 26-23 vote.

The bill now heads to Gov. Chris Gregoire, who will decide whether to sign it into law.

"This was an important enough bill that we needed to get it done as quickly as we could," said bill sponsor Rep. Sharon Nelson, D-Vashon.

Payday loans are small, very short-term loans with extremely high interest rates that are effectively advances on a borrower's next paycheck. They're typically obtained when a borrower goes to a check-cashing outlet or an online equivalent, pays a fee and writes a postdated check that the company agrees not to cash until the customer's payday. Finance charges typically amount to annual interest rates in the triple digits, around 400 percent, and can go as high as double that.

The bill would limit the size of a payday loan to 30 percent of a person's monthly income or $700, whichever is less. It also would bar people from having multiple loans at different payday companies, and set up a database to track the number of loans taken out by individuals.

The bill also enacts an installment plan for people who fall behind on their loan payments. Customers would have up to 90 days to pay back a loan of $400 or less, and 180 days for a loan of more than $400 without a fee. Currently, a borrower has 60 days and must pay fees.

Throughout the session, the payday-lending industry had argued that more regulation would force payday-lending companies to reduce staff or even close stores.

Associated Press calls for comment to numerous representatives of the payday-lending industry were not immediately returned late Wednesday.

Sen. Don Benton, R-Vancouver, echoed the industry arguments on the Senate floor, saying that this is not time to be putting jobs at risk. Benton also criticized some of the key components, such as limiting the number of loans people can take out.

"That is tantamount [to us saying] you can only eat at McDonald's eight times a year because it's bad for your health. Who are we to tell people how many loans per year to take out?" Benton asked. In the final passage, Benton voted to concur with the House.

Critics say payday lending is a debt trap that leaves people paying off loans for a long time, often using other payday loans, and paying heavy interest. The Washington bill does not include an interest-rate cap — an element consumer advocates have sought for years.

"This is a tremendous step in the right direction for people who are truly caught; this bill will help disrupt the cycle of debt," said Maya Baxter, director of the Statewide Poverty Action Network, one of the chief groups lobbying for stricter regulations. "If this bill doesn't work, we'll be back to continue to fight for more protections."

Baxter and others have lobbied for more regulation in Olympia for years now, often advocating for bills that would have essentially eradicated the industry. In those years, strong lobbying from the industry fended off those attempts.