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A diverse coalition of groups is attempting to make a final push for approval of tougher regulations on payday lenders with only two days before a legislative deadline passes and the bill is dead for another year.
Sixty members of Iowa Citizens for Community Improvement protest outside of ACE Cash Express on the corner of Carpenter and 19th St in Des Moines last month (photo courtesy of Iowa CCI).
Groups like the Iowa Christian Alliance, Iowa Citizens for Community Improvement and the Iowa Child & Family Policy Center are asking lawmakers to pass House File 2127, a bill that gives payday lenders the option of capping rates and fees at 36 percent or capping the number of loans per borrower at six. They contend that current regulations put low-income people at risk of financial ruin.
But Friday marks the self-imposed legislative “funnel week” deadline for bills to clear committee to stay eligible for consideration this year. The payday-lending bill is currently stuck in a subcommittee, one vote shy of moving on.
“I wish I had better news,” said Janet Petersen, D-Des Moines, one of the bills 34 sponsors. “It needs three signatures to pass out of subcommittee and only two members have agreed to sign off on the bill.”
Matthew Covington, an organizer for Iowa CCI, said Democratic state Rep. Michael Reasoner of Creston is the holdout, as the panel’s two other Democrats have said they support the measure and two Republicans have indicated they oppose it.
Reasoner did not respond to repeated requests for comment, and Covington said his organization has been unable to speak with him on this issue.
Norm Pawlewski, a lobbyist with Iowa Christian Alliance, said his organization’s Biblical worldview is what motivated their support of tougher regulations on payday lending.
“The way this industry is run amounts to usury,” Pawlewski said. “It puts people in a situation where they get into a hole they can’t dig out of.”
In general, a payday loan is a low, single payment loan customers repay when they receive their next paychecks. Payday loan amounts typically range from $100 to $500, with interest rates routinely between 390 and 700 percent, according to a recent study from the George Washington University School of Business.
At more than 250 outlets in Iowa, consumers can get a quick loan, for a fee, by writing a personal check with a future date on it or by authorizing a direct withdrawal at a future date from their checking account.
Critics contend that even though the expectation with a payday loan is that it will be repaid on the borrower’s next pay day, for many borrowers this means that most of their paycheck must go toward paying the loan, leaving them with little to nothing to cover remaining expenses. This situation forces borrowers to either get a new payday loan to cover their remaining expenses, or get a second loan from another company to cover the first payday loan.
“People are faced with a difficult situation – they get laid off, get a huge repair bill on their car, get a big medical bill – and they turn to payday lenders,” Pawlewski said. “If they can’t pay it back right away they get stuck in an endless cycle.“
The average borrower takes out 12 loans over the course of a year, Pawlewski said.
Payday loan industry officials argue the service provides valuable credit to cash-strapped customers in unexpected, difficult financial situations. They contend that tougher regulations would drive them out of business and take away one of the only lines of credit available to certain segments of the population.
However, in states where interest rate caps on payday lending have been implemented, banks, credit unions, local governments and nonprofit agencies have stepped up to fill the void with small-dollar loans at reasonable interest rates, Covington said.
The issue of payday lending has been around for many years, but Covington said this year there is more momentum than he’s ever seen. Despite this, and Covington’s optimism, without quick action the legislation will fail to meet the legislative deadline and be finished for 2010.
“I’m still hopeful that it can get through committee,” Covington said. “We’re pushing hard to get action on this.”
State Rep. Bob Kressig, D-Cedar Falls, said the future of the legislation is unclear.
“Not sure on the fate of the bill,” said Kressig, who also sits on the subcommittee looking at the measure. But he personally will support it because “pay day loans don’t help people who are already living paycheck to paycheck.”
Pawlewski said many legislators may have a philosphical problem with the bill, since it enacts tough regulations on a specific industry.
“But this bill really isn’t as onerous as it is portrayed by some,” he said. “Limiting interest rates to 36 percent or limiting loans to six a year isn’t going to kill the industry. It will allow the businesses to continue to operate.”
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