Montana officials push for more 'payday' loan regulation: industry protests
December 15, 2006 - Great Falls, Montana
Some of Montana's poorest consumers fall victim to lending services that charge exorbitant interest rates for payday or title loans and get trapped in debt, says Attorney General Mike McGrath. McGrath was in Great Falls Thursday promoting a bill for the upcoming session to cap interest rates of payday loans. But lenders say the bill unfairly targets their industry and, if passed, would drive their industry into the ground. "This is great sound-bite legislation," said Bernie Harrington, president of Montana Financial Service Centers Association -- the trade group representing deferred deposit lenders. "House Bill 29 would not allow this industry to survive in the state of Montana. It's a prohibition bill." Rep. John Parker, D-Great Falls, is sponsoring the bill. Payday loans are short-term, small-amount unsecured loans that borrowers promise to repay using their next paycheck or Social Security check. There are about 114 payday lenders in the state. Although all businesses are required to obtain a li-cense, there is little to no regulation over the industry, McGrath said. Harrington disagrees, saying the industry has welcomed state regulations in the past to avoid financial disasters observed in other states, he said. Montanans, on average, pay more than 400 percent interest on a payday loan, McGrath said during a noon news conference at the City Commission Chamber. Borrowers end up taking out a dozen loans to stay afloat and eventually end up spiraling into a debt. McGrath warned that many people need to be particularly cautious of the urge to use payday loans during the holidays when buying Christmas gifts, but Harrington questioned at what point the consumer is held responsible for his or her own finance. House Bill 29 would cap the APR on payday and title loans at 36 percent, ensure consumers only have one loan out at a time, set up repayment plans and cap loans at 25 percent of the consumer's net income or $300, whichever is less. Congress also passed payday loan legislation in October aimed specifically at helping military personnel and their families. This legislation will allow for better enforcement of the federal law, as well as protect all Montana consumers, McGrath said. Many people use payday loans instead of falling behind on a credit card payment or choking down a late fee or bouncing a check. Those borrowers depend on the industry, Harrington said. "I don't think the backers really understand the consumers they think they are trying to protect," he said. Once the federal legislation takes effect in October, payday lenders will be forced to quit servicing customers in the military, Harrington said. Should the Legislature pass this bill, the industry will be forced to quit servicing customers altogether. The bill is not intended to be anti-business, McGrath said, but level the playing field among all financial services and teach financial responsibility and accountability to borrowers.
News Source
Great Falls Tribune, Chelsi Moy, Staff Writer
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