Payday Loan Times

By the Editorial Board of the Union-Bulletin

Often those who seek short-term, high-interest payday cash advances are desperate. Why else would they agree to pay 300 percent interest?

We, as a society, have an obligation to protect the most vulnerable among us from this legal loan sharking.

The federal government has taken action to protect those in the U.S. military and their families. A new federal law, which takes effect in October, caps annual interest rates [on military payday loans]and fees at 36 percent.

But what about the rest of us?

Washington lawmakers are now looking at several proposals aimed at protecting consumers from outrageous interest rates that too easily trap consumers in a vicious cycle of debt.

Establishing protections on payday cash loans is tricky. The regulations need to be strict enough to protect consumers but not so restrictive that payday lenders can’t make a reasonable profit.

Payday lenders do serve a legitimate need. However, payday loans are a rotten way to get your hands on cash. Other lower-interest avenues should always be pursued first.

Unfortunately, some people have limited options - all of them bad. Those with poor credit - or no credit - might find that cheap payday loans make the most sense for them. They might, for example, need $100 for a week or two and the cheapest way to get it is to pay $15.

At least with payday loans, consumers know up front what interest rate he or she will be paying.

Without that option, the desperate will be forced to consider even more expensive, even dangerous, options.

It is better to have a regulated industry in which consumers have some protection.

“We’re not trying to put the industry out of business, just trying to make it fair for everybody,” said Rep. Sherry Appleton, D-Poulsbo, who has introduced two proposals aimed at protecting the public.

Appleton has proposed capping interest at 36 percent annually (the same rate as military families) and setting a minimum bad credit cash loan term of 90 days.

Lobbyists for the payday industry contend 36 percent interest rate - while very high compared to bank loans - is not high enough to keep payday lenders in business.

While it’s possible this might force a few of the payday cash advance lenders to consolidate or streamline their operations, it’s unlikley to drive them out of business. The business will still be profitable, just not as profitable.

In the end, it’s fair. After all, if military families are protected with a 36 percent interest rates, shouldn’t all families in Washington state have that same protection?