Opponents to Pennsylvania’s short-term loan bill (SB975) have revealed they are not the noble “consumer advocates” they claim to be. They are nothing more than low-life mercenaries, out to make a buck, while wrapping themselves in the banners of “non profit organizations”. They are actually harming the very people they claim to be helping, all the while duping the media and politicians.
A few years ago, the Pennsylvania legislature made a terrible mistake. They banned short-term lending. The Legislature was repeatedly warned of the harm this act would visit on consumers, and that harm came to pass. Without access to short-term credit, consumers have had to resort to bank overdraft charges – which cost $60 per check, about three times more than the average payday loan – and have filed for bankruptcy at a greater rate than they did before payday lending was banned. When choices vanish, demand does not disappear – it’s the primary lesson from Prohibition.
Now the Legislature has an opportunity to not only redeem itself by permitting short-term lending in place, but to do so under progressive terms that address the most common complaints about short-term lending. I have never seen a bill like this before. It provides every last ounce of consumer protection possible. Here are the major provisions:
• Lenders must be licensed
• Contracts must have “clear descriptions” of basic information, including amount of the loan, finance charge in both dollars and APR, itemized fees charged, TILA disclosures, right to request extended payment plan, warning that loan should only be used to meet short-term needs
• Consumer right to rescind loan
• No mandatory arbitration clause
• NO ROLLOVERS
• Right to repay in installments; no balloon payments if loan over 30 days
• Maximum loan amount of $1,000 or 25% of gross income
• State database to keep track of how many loans a borrower has at any time; customer verification of same
• Lenders cannot loan to anyone who has a loan already outstanding
• Assessment of customer ability to repay: Lender can pull credit at no charge.
• 1-day cooling off period between loans
• Lenders must contribute 50 cents per loan to a state credit counseling fund.
• Lenders must contribute 50 cents per loan to database fund.
• Lender must contribute $1.50 per loan to service the database fund.
• Lender must inform customer of credit counseling services available by the state.
• Interest of 28% APR
• Maximum 5% Application fee
• Maximum 5% Processing fee
• Lender must inform consumer if their loan is sold.
• No criminal charges if the consumer can’t repay.
• If the consumer can’t repay, they can enter into an extended payment plan of at least four payments, at no extra charge.
• Lenders can’t make loans to those on repayment plans.
• 13 other prohibited practices that have, at some time in the past, been the subject of complaints, such as offering credit insurance.
• Federal military law trumps. No loans exceeding 36% APR, including all fees (which means nobody will lend to military, since lenders can’t survive on just that 36% charge)
The average cost of a short-term loan across all states is about $15 per hundred borrowed. This bill lowers the cost to about $11 per hundred, while addressing every single complaint ever leveled at short-term lenders – especially rollovers.
Now get this – not only do these “consumer advocates” want to the kill the most consumer-friendly short term bill in history, but they already killed a $3 per loan surcharge which would be have earmarked for credit counseling, financial literacy, and short term housing for those in need. Since when is that considered “advocacy”? It isn’t, and there’s a reason why.
Mercenary Activists, whose only reason to exist is to oppose all permissive short-term lending legislation, do so they can justify the millions of dollars they rake in every year.
That describes Kerry Smith, of the oh-so-noble-sounding Community Legal Services. This “non-profit advocacy” group is only advocating for itself, so it can maintain the $11.4 million in contributions, grants, and revenue it generates each year, and FIFTY MILLION DOLLARS since 2006. Its seven principals each make between $108,000 and $135,000 each year in salary – yet they have no problem restricting the choices of others, and keeping 3,000 people on the unemployment lines in order to protect their jobs.
Then there’s Nanny Statist Senator Mike Stack (D). His objections are that “consumers need to cut expenses or gain more revenue to cover their bills”. No kidding! But since Mike Stack isn’t living paycheck to paycheck, it’s easy for him to tell other people what to do, and he relies on flawed and biased studies regarding their behavior. Who is this arrogant elitist to say what people do or don’t do, and what choices they should make? Who is HE to claim that, “payday lending is not used for short term financial needs”? And let’s talk hypocrisy – Stack has no problem with the state lottery, a regressive tax that truly takes advantage of those who can least afford to waste money. I guess he’s fine with choices that are proven to harm people in which they get nothing in return, yet opposes choices that help 12 million people a year, and give them credit they need, when they need it.
In addition, these opponents have hired Visa’s contract lobbyist, Mike Long, to fight the bill. Another mercenary, out for his own gain.
I consider this to be groundbreaking legislation. No reasonable person would object to it, which is why it has bipartisan sponsorship. Republican Senator Pat Browne and Democrat Senator John Yudichak should be applauded for their efforts. This is a pro-consumer AND pro-business bill that is also good for the state treasury. It re-introduces short-term credit at prices that are 26% below where they used to be, and provide every consumer protection opponents have ever crowed about. It will create as many as 3,000 jobs, and provide the state with tens of millions in tax revenue.
It’s time to pass SB975. It’s win-win all around, except for mercenary activists, and who wants them to succeed?