Desperate, cash-poor residents of Idaho, South Dakota, and Alabama could be in for some relief as lawmakers in their states look to make payday lending less predatory.
The reform push in two of the states is modest. The Idaho measure would allow borrowers extra time to repay loans without racking up further interest on the debt, but not on every loan they take out. It would also cap the total amount of short-term debt a person could take out from the predatory lenders at 25 percent of monthly income. A reform package introduced last week in South Dakota would combine the borrowing caps and extended repayment windows featured in the Idaho proposal with a slate of changes to rules for how the loans are marketed and regulated by state authorities.
Alabama’s effort is more ambitious and would cap payday loan interest at an annual percentage rate (APR) of 100. The typical paycheck loan interest rate currently is 339 percent APR — something the lenders work to conceal from borrowers, who typically end up paying $520 in interest and fees on every $375 they borrow from these companies. The same Alabama lawmaker is also renewing an effort that the industry blocked last year to create a public database to track payday lending in the state.
A coalition of storefront cash-advance lenders with names like Quick Cash and Cash Mart sued the state last year to block the implementation of that database idea.
That Alabama suit showcased the payday lending industry’s tenacious and often successful resistance to reform. With 12 million customers per year and roughly $3.4 billion in annual revenue extracted from the poorest communities in the country, payday lenders have a lot to lose and fight hard to protect their profit streams. The companies spend millions of dollars on donations to federal and state lawmakers alike. A pair of powerful House Republicans recently sought to block a Department of Justice investigation into how banks partner with payday lenders. That was just the latest in a long line of lawmaker favors to the industry.
The new efforts in Alabama, Idaho, and South Dakota come just weeks after a similar push got underway in Utah. Last year’s legislative session saw multiple states attempt to curb payday lender abuses with little success, as industry lobbyists stifled legislation in Alabama and California. In reaction to stymied efforts, a coalition of more than 100 groups across four states issued a call for a national ban on payday lending, a signal that several of the activists and lawmakers most involved in the fight over payday lending at the ground level have decided they cannot win in a piecemeal way.
And there are signs of progress on the national level. While the industry has long operated in a regulatory dead space, the Consumer Financial Protection Bureau has made payday lending one of its top targets for new rules and scrutiny and it won an unprecedented legal settlement against an abusive Ohio lender last year. That crackdown, together with the criminal investigation that drew fire from industry-friendly House conservatives, has led several large banks to end the high-interest, short-term loan offerings they launched in the wake of the financial crisis to tap into customers’ desperation for cash.
What’s more, prominent national progressives have started to talk about empowering the U.S. Postal Service to offer basic banking services to customers. That could drive payday lenders out of business entirely while providing struggling people with access to non-predatory versions of the same cash advance lending products so many of them rely upon today.