State House Sound Bites

Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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Payday lending regulations head to Senate

Written by Mary Wilson, Former Capitol Bureau Chief | Jun 8, 2012 2:16 PM

The lending industry calls them small-dollar loans; opponents call them payday loans.  State House lawmakers have approved regulations of the short-term loans – a move detractors say will make predatory loans more commonplace in Pennsylvania.  

The small loans tend to be taken out for a couple weeks at a time, and they often come with high interest rates and fees.                

Such lending is controversial, but it does have its defenders.  John Rabenold, a spokesman for the industry group Community Financial Services Association of America, said it’s better to take out a payday loan than it is to pay bills with a check that bounces.  “A single bounced check can run in hundreds of dollars in fees.  And that’s what customers are trying to find alternatives to.”

But opponents of the short term loans say such arguments are distractions, and that overdraft fees incurred with a bounced check are just as predatory as payday lending.

“Payday loans actually increase overdraft fees… because of the payday lender having access to the borrower’s bank account,” said Kerry Smith, an attorney with Community Legal Services, based in Philadelphia.  “Payday lending leads to increased bounced check fees.”

She added the House proposal would increase the year-long interest rate of a short-term loan from the current cap of 24 percent to a figure in the triple-digits.  Such loans, opponents say, lock borrowers into a cycle of debt. 

The bill would also require lenders to be licensed, and put limits on the amount people can borrow.  The measure is being welcomed by industry groups like the Financial Service Centers of America. 

“I think what we’re concerned about is a level playing field,” said spokesman Stephen Altobelli.  “We want an environment where everyone has to follow the same rules.  Those rules are clear, so that everybody understands what the rules are.  Those rules provide adequate consumer protections.”

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