This editorial will appear in Monday’s print edition.
When it comes to protecting the public from itself, state Rep. Steve Kirby, D-Tacoma, has undergone a change of heart.
In years past, he fought tough restrictions on payday loans that consumer advocates sought as a way of protecting people from getting into deep financial trouble. After years of dickering on the issue, the 2009 Legislature enacted some reasonable protections for consumers – including a rule that limits borrowers to eight payday loans in a 12-month period.
That restriction was designed to prevent people from becoming overly dependent on these costly, short-term loans, and Kirby agreed to it as part of compromise legislation to avoid even tougher restrictions sought by consumer advocates.
But now, one year after the new restriction went into effect, Kirby argues that the eight-loan limit is driving cash-strapped borrowers to “the Wild West” of the Internet, where they can be victimized by unlicensed lenders who observe no caps on the number and size of loans.
That’s why he is sponsoring legislation (House Bill 1678) to lift the eight-loan cap? To protect people from unscrupulous online lenders? That makes about as much sense as saying that rules restricting the amount of oxycodone that can be prescribed should be relaxed so that people won’t resort to buying street drugs.
The number of payday loans has decreased since the new rules went into effect – not a bad thing, in our book – and it’s very possible that the eight-loan rule played a part in that.
It’s also possible that some people who couldn’t take out additional payday loans resorted to Internet lenders, many of whom are unlicensed and illegal. But there’s only anecdotal evidence of that happening because there’s no way to track illegal Internet lending. It seems likely that the number of legitimate payday loans is lower because people know that they are now limited to eight loans.
If people were resorting to Internet lending in significantly greater numbers, one might expect that complaints would significantly increase as well. But they haven’t. In 2009, before the eight-loan limit went into effect, 96 complaints against Internet lenders were filed with the state Department of Financial Institutions. In 2010, that number only rose to 108 – hardly a big increase.
In the same period, though. the number of complaints against non-Internet lenders rose from 120 to 184 – even though the total number of loans decreased from 3 million to 1 million.
Payday lenders do fill a niche role; sometimes people just need a quick loan to get them through a rough patch, and they might not be able to borrow from banks or credit unions. Current rules allow for those contingencies while the eight-loan limit discourages people from getting trapped by these high-interest loans. That’s a compromise we support – and one that Kirby once did, too.
Kirby hasn’t made the case that the sensible eight-loan limit is creating a hardship for the public that needs addressing only one year after it went into effect. He’s got to have better things to do this session than carry more water for payday lenders.