Payday lenders convinced state House Republican leaders to slip a line into a Fiscal Code bill needed to implement aspects of the new state budget stating that it was the "intent" of House and Senate Republican leaders to pass legislation legalizing high-interest payday loans in Pennsylvania.
The gambit won the industry no friends in the Senate, whose leaders had not approved the provision. Last week, the Senate voted unanimously to strip out the payday lending language. Even Senator Pat Browne, a supporter of the payday lending bill, told the Pittsburgh Post-Gazette: "I do not believe that the fiscal code, a bill that directly relates to our budget, is the appropriate place to address this."
The Harrisburg Patriot-News editorial board took House leaders to task over the weekend for using the Fiscal Code bill — which is needed to get additional funding to the Philadelphia School District, among many other aspects of the budget — to push payday lending forward:
The controversial payday-loan legalization bill had stalled in the Senate for good reason. Payday loans are a lucrative business built on exploiting people in times of urgent need.
Besides astronomical interest rates, the loans often come with tricks and traps that squeeze even more money out of the desperate customer. The usurious loans trap people who are financially struggling on a treadmill of debt, as they borrow more and more to cover the exorbitant financing costs. For example, paying off a $500 loan, renewed two weeks at a time for three months, can easily cost almost $450 in interest, fees and penalties, according to the Pennsylvania Credit Union Association. That’s an annual interest rate of more than 300 percent.
John Baer of the Philadelphia Daily News also criticized the move:
Sky-high interest rates, as in triple-digits when annualized, for short-term loans for people with bad credit; loans called "predatory" for a reason.
Pennsylvania caps rates, making sleazoid-lending less profitable; and in 2010 our Supreme Court extended the cap to online activity. One lender, Cash America Net, made $10 million a year through online payday lending here, the court said.
But language to revisit payday lending — promising a vote on the issue by the end of October — gets slipped into the Fiscal Code; on Page 55 of a 57-page bill.
Really? When you have power to use the process to get stuff done, this is what you do? Of all the things the state needs? Predatory lending?
Finally, yours truly had an op-ed in the Scranton Times-Tribune outlining the problems with high-interest predatory payday lending:
High fees and long-term debt are key to payday lender profitability. To paraphrase Tennessee Ernie Ford: You borrow over and over, and what do you get? Another day older and deeper in debt.
Lenders are retooling. They started out calling their new products "micro loans." That failed to win many friends, so they are now strategizing to come up with another name.
Payday lenders rely on a business model that offers up seemingly easy solutions but end up plunging working people into a debt spiral that's hard to escape. Someone who starts out short on one bill and takes out a loan quickly finds the interest and fees too much. So they borrow again and again. Before long, bankruptcy is the only option.
Payday lending saps the vitality of local economies. When people who use these products spend more on fees, they spend less at local businesses.
Pennsylvanians need to see past the smoke and mirrors.