State House Sound Bites

Capitol reporter Mary Wilson covers Pennsylvania politics and issues at the Pennsylvania state capitol.

"Payday loans" getting vigorous hearing in state Senate

Written by Mary Wilson, Capitol Bureau Chief | Sep 20, 2012 8:04 AM

So-called “payday loans” aren’t legal in the commonwealth, but state senators are considering a measure to allow them.

Supporters say the legislation, which has already passed in the state House, will finally regulate a shadow industry and won’t allow lenders to prey on borrowers.

When opponents of short-term lending get to talking, the oft-repeated phrase is “cycle of debt” to describe the situation they say borrowers get into when they take out loans they’ll have to pay back in a matter of weeks.

But in a Socratic exchange with the Glenn Moyer, the state Secretary of Banking, Sen. Jake Corman (R-Centre) pointed out that “inescapable debt” is already a reality for some people with credit cards.

"If I don’t pay off the balance, but pay the minimum which is required and don’t exceed my maximum, can I make more charges the next month?" said Corman to the Secretary. 

"Yes," said Moyer.

"If the next month comes up and I don’t pay off the entirety of my credit card again I just pay the minimum and I haven’t reached my maximum, could I make more charges the third month?" said Corman. 

"It’s a revolving credit account, yes," said Moyer.

"Sounds like a cycle of debt to me," Corman said. 

Moyer testified alongside the Rep. Chris Ross (R-Chester), the sponsor of the bill to allow payday lending.  Moyer stopped short of getting out in front of the governor by giving the bill his endorsement, but said he considers the regulations capable of keeping lenders from abusing borrowers -- most important among them, he said, is language that any loans not in compliance with state regulations will not be enforceable or collectable.  Ross pointed to the proposed ban on "rollovers," which will keep unpaid debt from being pushed onto a second loan period.  He said regulating legal short-term lending is necessary to keep people from resorting to the unregulated lenders operating outside of the state -- advertising on TV, in print, and online.

"It is already easy to take out a payday loan in Pennsylvania because all you have to do is pick up the telephone or go on the computer and, a couple of keystrokes, you’re in," said Ross.  "So they are widely available, they are broadly advertised."

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But Kerry Smith, an attorney with Community Legal Services in Philadelphia, said there is no great clamoring for short-term loans in the commonwealth. "The only people who are pushing this bill are the out-of-state payday lenders who are going to make money off of trapping people in 300 percent interest rate debt," she testified.  

Several Republican senators say the 300 percent figure is misleading, based on a calculation as if people are borrowing money for an entire year, instead of a period of weeks or a couple months.  Instead, they pointed to the 12.5 percent interest rate referred to in the legislation.  But Smith said that figure does not take into account how interest rates are truly calculated.  She said the only way to compare variety of loans against one another is to use a rate that spans an entire year -- the annual percentage rate that describes car loans and mortgages.  In the case of the payday loans proposed, Smith said the year-long interest rate would be up to 369 percent.  

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