Pridemore takes on payday lenders

Sen. Craig Pridemore has waded into the fray over payday lending with a bill that would extend the payback period on the short-term loans to 60 days and cap the outstanding balance for individual borrowers at $700.

Under current law, borrowers must repay the loans within two weeks, which sometimes forces them to take out additional payday loans to repay the initial loans. That can send them into a spiral of debt incurred through processing fees and interest payments.

“My bill gets directly to the problem we are experiencing most with payday lenders, putting borrowers on a cycle of taking out loan after loan after loan,” Pridemore said.

Payday lenders give cash to customers who pay a fee and write a post-dated check.

Pridemore, D-Vancouver, said he hasn’t previously proposed payday lending reform because as vice chairman of the Senate Ways and Means Committee, he chose not to get on the wrong side of his boss, Chairwoman Margarita Prentice. Prentice, D-Renton, has been a staunch defender of the payday lending industry.

Pridemore stepped down as Ways and Means vice chairman this year.

Under his Fair Payday Loan Act, introduced as Senate Bill 5750, borrowers who are unable to repay their original loans within 60 days would be able to enter into payment plans that extend their repayment period by one month for each $100 they owe. Lenders would not be allowed to charge additional fees or interest as part of the change to the new payment plan.

“The goal for a short-term loan should be to get over temporary hardship,” Pridemore said. “These loans have the effect of putting people in perpetual debt. People who have to take out payday loans typically live paycheck to paycheck and are especially vulnerable to the high interest rates and loan processing fees charged by payday lenders.”

Previous efforts by the Legislature to reform payday lending practices have failed in the face of intense lobbying by the industry. But some lawmakers think the nation’s financial woes will give the effort a boost this year.

A separate Senate bill on which Pridemore is a co-sponsor caps the annualized interest rate payday lenders may charge at 36 percent. Some borrowers currently pay as much as 500 percent.

Oregon voters approved a 36 percent cap on payday lending interest rates in 2007. A study funded by the payday lending industry found that restricting access to expensive credit harmed rather than helped consumers by making it impossible for them to obtain credit from any source. Many payday lenders left the state after the cap was enacted.

So far this year, lawmakers in 11 states have introduced more than 40 bills related to payday lending, according to the National Conference of State Legislatures.

In Washington, a bill introduced by state Rep. Sherry Appleton, D-Poulsbo, would ban payday lending.

Pridemore doesn’t support a ban.

“One of the problems we’ve had is that some people want to just shut these guys down,” he said. “This approach lets them stay in business, but also protects the borrower.”

Pridemore credited the Statewide Poverty Action Network and the anti-poverty group Solid Ground for helping shape the policy behind his bill.

“Before we legalized payday loans in 1995, this activity was considered loan sharking,” he said. “What we’ve done is, we’ve legalized loan sharking. We didn’t mean to, but we did, and now we’ve got to fix it.”