ID lawmakers to consider new payday loan bills

By Sarah D. Wire, AP, 3/10/09

BOISE, Idaho — State lawmakers have agreed to consider two bills that would provide a powerful incentive to make sure all payday lenders offering loans to Idaho residents are licensed.

Payday lenders provide short-term loans with high interest rates and usually cater to lower-income borrowers. Customers are supposed to repay the loan with their next paycheck. The loans can come at a high price, with most businesses charging about 25 percent interest.

Both bills introduced Tuesday, one in the House and one in the Senate, would invalidate any loan provided by an unlicensed payday lender. They would also allow the state Department of Finance to issue cease and desist orders and to sue unlicensed payday lenders.

In order to operate in Idaho, payday lenders are required to have a lender's license. The problem is that some Internet payday companies are offering loans without getting a license. These bills would give the state the right to say that a loan from an unlicensed lender is invalid.

House Minority Leader Rep. John Rusche, D-Lewiston, said the cease and desist order would keep lenders from harassing Idaho residents.

"Basically it says if you borrow from an unlicensed lender they have no right to collect," Rusche said.

The House bill would also require payday lenders to give consumers a list of credit and debt counseling services and would create an optional payment plan for borrowers who can't pay off the loan.

Sen. Shawn Keough, R-Sandpoint, told The Associated Press that online payday lenders who cater to Idaho borrowers should adhere to the same consumer protection laws as payday lenders who operate actual stores in the state.

"I want to afford those Idahoans who need this service the same safety net as if they went down the street to get a loan," Keough said.

Keough said the state currently has no authority to help any Idaho consumer harmed by an unlicensed online payday lender.

Dennis Bassford, chief executive officer of Tukwila, Wash.-based MoneyTree Inc., did not immediately return an Associated Press call for comment Tuesday. MoneyTree Inc. is licensed to lend in Idaho.

No representative of an unlicensed payday lender was immediately reachable by phone for comment Tuesday.

Idaho Department of Finance Director Gavin Gee told The Associated Press that there are thousands of unlicensed and unregulated payday lenders online. He said several Idaho consumers have contacted his department over unfair lending by unlicensed payday lenders.

Gee said there were 239 licensed payday lenders in Idaho in 2008.

The most recent Department of Finance numbers show that in 2007, Idahoans took out 1.36 million payday loans, which totaled $389 million. Gee said the average Idaho payday loan is for $300.

Two lawmakers said they want to revamp Idaho's payday lending laws next session.

Rep. Grant Burgoyne, D-Boise, said he wants to cap the fees and interest that payday lenders can charge borrowers.

Senate Assistant Minority Leader Sen. Elliot Werk, D-Boise, said he and Burgoyne want to add more regulation to payday loans.

Idaho's payday loan law was last revised in 2003 to cap the maximum amount a customer can borrow in any 24-hour period at $1,000 and permit customers to return borrowed cash within 24 hours for a full refund.

Critics of the industry say payday lending is a debt trap that leaves people paying off loans for a long time, often using other payday loans, and paying heavy interest. Efforts to regulate the payday loan industry have appeared across the country.

Lawmakers in South Carolina are trying to limit the number of payday loans a consumer could have with a single payday loan company.

On Tuesday, the Washington state House passed a bill that would require such lenders to offer extended payment plans to borrowers who get in over their heads. The measure also blocks borrowers from receiving loans totaling more than 30 percent of their monthly income. The bill now goes to the Washington state Senate.