March 15 Daily News editorial

A bill aimed at reining in payday lenders remains very much alive this legislative session. House Bill 1709 easily cleared the lower chamber on Tuesday and now is pending in the Senate, where it’s expected to pass.

The added measure of protection this legislation offers unwary consumers is small relative to what long-time advocates of tighter regulation wanted. It doesn’t contain the limitations on the amount of interest borrowers could be charged, for example. But the bill would help those who fall behind on their loan payments. They could get extended payment plans, allowing up to 90 days to pay back a loan of $400 or less and 180 days on loans of more than $400 without an additional fee. The bill also prevents borrowers from receiving loans that amount to more than 30 percent of their monthly income.

The additional protection HB 1709 would provide is welcome, though long overdue. Payday lending is a growth industry that has been in need of tighter state regulation for many years. According to the state Department of Financial Institutions (DFI), 90 companies were operating in 377 locations statewide in 2000. By 2007, there were 138 companies in the state operating at 729 locations.

These lenders offer small, unsecured, high-interest loans mainly to people living paycheck to paycheck. They can loan up to $700, charging a fee of up to 15 percent on the first $500 and 10 percent above $500. The maximum fee on a $700 loan would be $95, according to the DFI. The agency calculates that this fee works out to an annual percentage rate of more than 391 percent.

Of course, these loans are short-term. But that doesn’t mean a borrower can’t end up paying a very high cost for a small cash loan. Most payday loans go to people living paycheck to paycheck — working poor who have no reserve to tap for emergencies. Richard Sands, a counselor at the Family Finance Resource Center in Longview, told The Daily News in 2007 that the “quick-fix” payday loans can push borrowers deep into debt. “The reason payday loans are so bad,” Sands said, “is that individuals start a downward spiral. They don’t have the money to make the payment and therefore they borrow it again and again.” Sand told of one case in which a person who borrowed $150 to help out a friend ended up owing $1,650 on the loan after one year. Sand said he’s seen people with up to 13 simultaneous payday loans from different lenders.

House Bill 1709 would bar people from taking out multiple payday loans at different businesses. The legislation would require that a database be created to track the number of loans made to individuals. That would help prevent some borrowers from getting in too deep. The bill’s provision granting borrowers extended payment plans also should be helpful. But the potential for financial trouble will remain for anyone who tries to stretch a paycheck by borrowing against the next payday. Ultimately, it’s a matter of borrower beware.