Payday lenders couldn’t get a Pennsylvania Senate committee to move a bill that would let them prey on the working poor with annual loan rates of up to 369 percent. But the wolves haven’t stopped circling.
The Senate returns to session on Oct. 15. Philadelphia’s three senators on the Banking and Insurance Committee — Michael Stack, Lawrence Farnese, and Anthony Williams — must resist pressure to push low-income families into a debt trap.
Pennsylvania has a tough anti-predatory lending law, which caps the annual percentage rate for loans at 24 percent. The Department of Banking and Securities has gone after out-of-state lenders that charge high rates. And the state Supreme Court upheld a ban on Internet loans in 2010. But none of that has discouraged payday lenders from such a rich hunting ground.
Borrowers typically take out a small loan, thinking they’ll be able to pay it back on their next payday. But when payback time comes, they realize they don’t have enough money and take out another loan. That starts a months-long cycle that pushes borrowers further and further into debt. They secure new loans with a bank account or prewritten credit-card check allowing the lender to dip into his funds.
Payday loans became such a problem for military personnel and their families that in 2006 the Defense Department persuaded Congress and President George W. Bush to limit them to 36 percent.
Other states, including Arkansas and Ohio, have banned triple-digit interest on loans and, sadly, Pennsylvania is risking its reputation of being a leader in protecting consumers from destructive financial products.
A version of this dangerous bill was passed by the House in June, mostly along party lines, but also with the help of three gullible Philadelphia lawmakers.
Consumers should stay on the alert for these loan wolves, who have proven to be as cunning as they are swift, and keep the pressure on Philadelphia’s senators to keep this bill trapped in the banking committee, where it should die due to lack of action.