Law quashes local payday lenders

Eight have closed in past two years; only nine remain

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OLYMPIA — Payday lending offices in Clark County have decreased since the state enacted a law curbing predatory lending, which a new report says has saved millions of dollars for Washington residents.

The law went into effect Jan. 1, 2010. It offers access to a strong repayment plan and an eight-loan limit that is only available in Washington.

“Other parts of the country may have good repayment plans but they don’t have that loan cap,” said Marcy Bowers, director of the Statewide Poverty Action Network. People in other states aren’t eligible or may not know they are eligible for a repayment plan, while Washington makes it immediately available after customers take out an eighth loan.

Before the eight-loan cap consumers were falling into a debt cycle, taking out new loans to pay off previous loans, according to Bowers.

Additionally, few borrowers were able to get into a repayment plan as there was no incentive for lenders to offer them. Lenders would set specific qualifications to be eligible for the repayment plan, which clients then had to pay for.

“People would have to default a certain number of times and be pretty desperate. Then you had to pay to get in, which just doesn’t make sense,” Bowers said.

The law has diminished the payday lending industry across the state, including Clark County, where lending locations decreased from 17 in 2009 to nine in 2011. Statewide, the number of locations decreased nearly 30 percent from 603 to 424, according to the 2010 Payday Lending Report.

While people still pay expensive interest rates, equivalent to an annual percentage rate of about 400 percent, the report suggests the cycle of debt has been interrupted. The total number of loans in Washington went from 3 million in 2009 down to 1 million in 2010.

“The number of payday loans made in our state has been rising consistently for the past 10 years and now the numbers are lower than they were in 2000,” Bowers said.

The report, released by the Department of Financial Institutions, also showed Washington borrowers paid $122 million less in loan fees since the law was passed. According to Bowers, this is especially important now, with poverty rates on the rise. The number of Clark County residents considered to be in poverty increased by nearly 9,000 from 2008 to 2009 according to the U.S. Census.

“People need every penny to survive. These new protections are allowing more people to save money and meet their basic needs, instead of paying high interest rates to payday lenders,” Bowers said.

The people most likely to take out payday loans, according to Bowers, were residents living just above the poverty line, who may fall into poverty after getting stuck in debt cycles.

“They’re living paycheck to paycheck, then something happens and they fall into this trap,” Bowers said. “It’s very common to have medical issues come up where people just need to get a prescription… but don’t have very good health care coverage.”

The DFI’s report is the first sign the law is effectively saving people money, Bowers said. “We’re really excited to see that the DFI report confirms that it’s working and breaking the cycle of debt for people.”