'Payday' loans bill advances in Pennsylvania Senate

Some argue product creates a cycle of debt

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HARRISBURG -- A bill opposed by many consumer groups that would legalize so-called "payday" loans in Pennsylvania cleared a Senate banking committee by a close vote last week.

Such short-term, high-interest loans aren't allowed in Pennsylvania now due to caps on interests.

Annual percentage rates of interest are capped at under 30 percent currently, according to the state's Department of Banking and Securities.

"All the studies show it is a very rare situation where a person would only take one of these [payday] loans out. They get into a cycle of debt," said Ray Landis, advocacy manager for AARP Pennsylvania, which opposes the bill.

The legislation must still clear the appropriations committee before it can reach the full Senate for a vote.

It's not clear how much support the legislation would have in the full Senate; two members of the Republican majority -- Pat Vance of Cumberland County and John Rafferty of Montgomery County -- voted against the bill in the banking and insurance committee. The bill passed the committee, 8-6.

With only a few weeks left before a major budget deadline, a spokesman for Senate Majority Leader Dominic Pileggi, R-Delaware, offered a tepid assessment of when the bill might reach the Senate floor for a vote.

"We don't have any specific time frame established for this bill," spokesman Erik Arneson said.

There is no companion legislation in the House, according to Steve Miskin, a spokesman for Majority Leader Mike Turzai, R-Bradford Woods, though legislation to allow for such loans passed the House last year.

According to the National Conference of State Legislatures, 38 states have specific statutes that allow for payday lending. Eight states do not have specific payday lending statutory provisions and/or require lenders to comply with interest rate caps on consumer loans, including Pennsylvania.

If the state were to pass legislation to allow for payday lending, it would be bucking a trend nationally. Since 2005, no new state has legalized payday lending, said Diane Standaert, an attorney at the Center for Responsible Lending, a policy group that opposes predatory lending practices.

"Pennsylvania has one of the strongest laws in the country on this issue. It's been effectively enforcing its laws against these types of predatory lending practices," she said.

Pennsylvania's Department of Banking and Securities has not taken a position on the bill, press secretary Ed Novak said.

"We're still in the process of reading the bill," he said. "We haven't even had a chance to take a look at it yet."

Another bill to allow payday lending was drafted last year but was never voted out of committee.

Sen. Pat Browne, R-Lehigh, the sponsor of this legislation, said he believes the current legislation includes changes that would protect consumers. Such changes include limiting a consumer to no more than eight consecutive successful two-week loans; a ban on rollover loans; and an indebtedness limit of $1,000 or 25 percent of gross monthly income, according to a memo circulated to gain co-sponsors for the legislation.

Such loans are needed, Mr. Browne believes, and can help keep low-income consumers from using other products that can be harmful, such as high-interest credit cards.

"We all know there's going to be times when people's short-term needs outstrip their available cash flow," he said.

Such changes do not change the fundamental facts of the bill, some advocacy groups say.

"Our objections remain the same," said Mark Price, a labor economist with the left-leaning research and policy group Keystone Research Center, calling such loans exploitative products that allow low-income people to dig themselves deeper and deeper into a financial hole.

"This is a product that is actually making people poorer," he said. "It is making their financial situation worse."

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Kate Giammarise: kgiammarise@post-gazette.com, 1-717-787-4254 and on Twitter: @KateGiammarise.


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