A federal rule that would have provided an extra level of consumer protection against payday lending practices has been proposed to be rescinded on the basis that it would reduce access to short-term loans for consumers.
Idaho cities in the past have attempted to protect citizens from payday loans that often trap consumers with drastically high interest rates. Idahoans paid almost $31 million in overdraft bank fees for payday loans and more than $65 million in fees for title loans in 2017, said Ellen Harnick, head of the Center for Responsible Lending’s western office in Oakland.
“That’s $96 million being sucked out of the wallets of families in Idaho,” she said. “It’s coming out of the monthly budget of people who are reaching out for these loans, almost invariably, the people who can’t afford it.”
The rule would have forced payday and title loan lenders to take an extra step in determining the probability that a customer could repay the loan in full. Industry titans say the repeal of the rule by no way means their businesses are going to go unregulated, and it would be “nonsensical” to lend to individuals who could not pay them back.
“We are regulated as stringently as any bank out there,” Moneytree CEO Dennis Bassford told the Idaho Press.
Industry associations say setting strict rules for licensed payday lenders will only limit consumers’ options for short-term loans.
Some states have implemented rate caps and other loan restrictions to reduce exploitative loan practices.
Idaho has some of the highest payday and title loan interest rates in the country, with an average interest rate of 652 percent, according to Center for Responsible Lending 2019 data.
This potential debt trap for consumers hasn’t gone unnoticed by Idaho lawmakers. In 2014, the Legislature passed a bill amending Idaho’s Payday Loan Act to include new protections for borrowers.
Caldwell City Council set out to reduce the number of payday lenders within the city two years ago by approving an ordinance to exclude payday and title lenders from commercial property without council approval. Pre-existing lenders went untouched, but the change limited the number of lending businesses lining Caldwell streets.
Caldwell Mayor Garret Nancolas said the measure was put in place to help protect and educate Caldwell citizens on the potential negative effects of taking out a payday or title loan.
“It seemed like for a while there was another payday loan place popping up everywhere,” he said. “We thought it was in the best interest of the citizens.”
The number of payday lenders in Idaho has gone down slightly. Registered payday lending businesses have dropped from 174 in 2016 to 154 in 2018. Consumer complaints rose from five in 2016 to 11 in 2018, according to the Idaho Department of Finance.
Often, complaints regard misunderstanding of the terms of a loan, said Anthony Polidori, consumer finance bureau chief for the department.