HARRISBURG -- An effort to legalize payday lending in Pennsylvania is seeing a renewed push as state lawmakers head back to the state Capitol for a handful of final session days.
At a committee hearing Wednesday, senators debated a measure that would allow the state Department of Banking to license and oversee businesses seeking to offer short-term, or "payday," loans. Those loans and related charges would be capped, and a real-time compliance system would be used to track whether those limits are followed.
The bill, from state Rep. Chris Ross, R-Chester, passed the House in June on a vote of 102-90. It would go to the governor's desk if it passes the Senate without amendments.
Opponents say doing so would be dangerous for low-income borrowers, who would be most likely to seek a short-term loan. Legal advocates and religious groups told the Senate panel that those borrowers may be unable to repay quickly or may use the money for recurring expenses -- actions that can trap them in a cycle of borrowing.
But supporters, such as Mr. Ross and lenders who testified Wednesday, say short-term lending already occurs in the commonwealth through the Internet and third-party groups that advertise on television.
"My guess is there would be strong agreement that it would be wonderful if none of our citizens were ever put in the myriad of life's challenges and emergencies that require obtaining a small-dollar, unsecured loan," state banking secretary Glenn Moyer said. "While this would be ideal, we also know it is not realistic in today's world."
Under the proposal, consumers could borrow the lesser of $1,000 or 25 percent of their monthly income. The loan's cost would be limited to a 12.5 percent finance charge and a $5 fee.
Pennsylvania law currently caps loan interest rates at an annual percentage rate of about 24 percent.
It also would prohibit so-called "rollover" loans, which occur when a borrower doesn't repay within the time period and instead continues the loan. Borrowers would have to wait at least one business day after a loan is repaid before a new loan could be granted.
One point of contention Wednesday centered around whether the short-term loans are a better deal than other options, like a credit card. Several senators were critical of a calculation made by attorneys from Community Legal Services, who said the allowable interest rate is equivalent to an annual percentage rate of 369 percent.