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Washington Payday Lending Battles: A Path to Consumer Protection and Reform

Learn about the payday lending industry in Washington and the evolution of consumer protection laws, from loan sharking to reforms in 2010. Explore the impact of regulations on payday loan volume, borrower behavior, and industry compliance. Discover the coalition of advocates and organizations that fought for fair lending practices and stricter regulations in Washington state.

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Washington Payday Lending Battles: A Path to Consumer Protection and Reform

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  1. Washington Payday Lending Battles 2003-2010 NCLC Consumer Rights Litigation Conference October 26th, 2012 Bruce D. Neas Columbia Legal Services Olympia, Washington Bruce.Neas@columbialegal.org

  2. Understanding the Product • Loan sharking, check kiting, bounced checks. • Payday lending illegal until authorized by the Legislature in 1996. Industry wrote the bill. • Payday lending grew out of check cashing. • 391% APR for a 14 day loan for $500. • Debt Trap- 91% of all payday loans made to repeat borrowers with five or more loans per year (CRL).

  3. The Situation in Washington-2004$793 Buys $325* • Payday Lenders= 713 (# of McDonalds=251) • # of Payday Loans= 3,297,012 • Volume of Payday Loans= $1,238,488,278 • Payday Loan Fees= $164 Million • These numbers continued to grow until 2010 reforms. *Typical Payday Borrower pays back $793 for a $325 payday loan from 2003 CRL Report.

  4. The “Legal” Payday Loan • Interest rate “caps” of 391% • $15 per $100 up to $500; $10 per $100 from $500-$700. • No minimum term. 45 Day Maximum Term. • Rollovers Legal-Repay the loan and immediately take out another loan.

  5. Building the Coalition • Consumer Advocates • Poverty Action • Labor • Military • Faith-based • Communities of Color • AARP • Social Service Providers & Advocates • Alliance to Prevent Predatory Lending (APPL)

  6. The History of the Campaign • 2003- Advocates propose 36% rate cap-Nothing. Industry responds with Repayment Legislation- Passes. • 2004-Advocates propose 36% rate cap-Nothing. Industry responds with Military “Best Practices”- Passes. • 2006-Congress passes Talent-Nelson Amendment for Military Borrowers • 36% rate cap and ban on check holding • Advocates continue pushing for same protections as military borrowers (36%).

  7. 2010 Payday Reforms-SHB 1709 • DFI to create database to regulate availability; • Limits of 8 payday loans in any twelve-month period; • Amount allowed on a payday loan is limited to 30% of a person's monthly income, or $700, whichever is less; • Prohibition on making payday loan if borrower has reached limit on amount allowed to be loaned, e.g. no more after $700 taken out; • Access to a 90- or 180-day repayment plan (90 days for under $400, 180 for over $400); • If borrower has repayment plan, no further loans.

  8. Other Protections • Payday lenders are prohibited from harassing or intimidating borrowers in the collection of a payday loan. • Loans made by Payday Lenders who are not licensed in WA are “uncollectible and unenforceable.”

  9. Impact of the Reforms • 2009: 3,244,024 payday loans totaling $1,336,028,845. • 2010: 1,093,776 payday loans totaling $434,111,743. • 2011: 855,829 payday loans totaling $326,673,119. • 2012: 909,570 payday loans totaling $342,989,751. • 2009: average length of a payday loan was 19.6 days. • 2010: average length of a payday loan was 28.6 days. • 2011: average length of a payday loan was 28.7 days. • 2012: average length of a payday loans was 26.7 days. • 2009: 109 payday companies with 603 locations. • 2010: 85 payday companies with 424 locations. • 2011: 68 payday companies with 188locations. • 2012: 52 payday companies with 151 locations.

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