A “payday loan” is a short term, unsecured loan, here’s how it works: The borrower writes the lender a post dated check, and the lender in return provides a lesser amount of cash to the borrower after subtracting interest and fees. The lender then retains the check for a specified period of time, during which the borrower can either redeem the check by paying the face amount of the check to the lender, or permit the lender to cash the check after the specified time period has passed.
Two bills have unanimously passed in the State of Washington House Financial Institutions and Insurance Committee (HB 1709 & HB 1310). The first measure HB 1709 will help consumers stay out of payday loan trouble in the first place, and get out of trouble if they do fall into it. The second HB 1310 aims to stop lenders from making mean spirited interactions in their collection practices.
A key element of HB 1709 limits loans to no more than whichever is the lesser of these two figures: more than 30 percent of a borrower’s income, or $700. Another crucial factor states that the maximum amount of any small loan or the outstanding principal balances of all small loans made by all lenders to a single borrower at any one time may not surpass $700. Example: At any one time, a customer can have one $400 loan and one $300 loan. The purpose of the measure is to stop the continuation of revolving debt that makes it extremely difficult for a borrower to repay a loan.
A lender would also have to inform a borrower about an installment plan for repaying a loan if the borrower is in danger of failing to repay it and would have to offer the installment plan when a borrower notifies the lender that they will be unable to repay the loan.
The other bill HB 1310 deals with complaints involving the industry that involved collection practices on the part of some of the businesses. In fact, the payday lending industry hasn’t been a large source of complaints in Washington. Out of about three million payday loan transactions in 2007, the department heard 138 complaints from borrowers. A third to a half of these complaints dealt with collection practices.
This bill mirrors the states “Consumer Protection Act” that regulates Collection Agencies. Payday lenders would be prevented from:
- Threatening legal action against a borrower that isn’t already allowed by existing state law.
- Visiting a borrower's home or workplace without an invitation.
- Impersonating a law-enforcement officer.
- Making a statement that a borrower can interpret as indicating an official connection with a governmental law-enforcement agency.
- Harassing a borrower with abusive, frightening, or embarrassing communications, including communications that take place either at unreasonable hours or with unreasonable frequency.