Efforts to rein in payday lenders have failed to gain much traction in Olympia this year. And if that’s not enough to satisfy the subprime lending industry, the legislative session has produced another bit of good news: Pawnshop owners are getting a long-awaited increase in the fees they can charge borrowers who use their personal articles to secure loans.
House Bill 1231 is small potatoes even to its backers, the Washington State Pawnbrokers Association. It allows pawnbrokers to charge a storage fee for stowing borrowers’ items, tacks on another $3 for storing a gun, and raises by one dollar the amount each broker can charge for preparing loan documents. The net cost to the consumer for a single transaction would be an extra $7.
“We didn’t want to look like we were just grasping,” says Nick Buell, legislative chair of the Washington State Pawnbrokers Association.
Still, the legislation reminds consumer advocates — who, in a coalition of labor, faith-based, and social-justice groups, pushed to abolish the high APRs and rollover practices exercised by payday lenders — of how little progress their own agenda made.
Backed by Communities Against Payday Predators, House Bill 1020 would have capped payday lenders’ interest rates at 36 percent APR. Twenty-seven state representatives co-sponsored the bill. But it never got a hearing, step one in making a bill into a law, in the House’s Insurance, Financial Services & Consumer Protection Committee.
Why? Committee chair Steve Kirby (D-Tacoma) says reducing payday lenders’ interest rates would have killed them outright.
“The problem with 1020 is it’s a roundabout way to ban payday lending,” he says. “It’s just a bill that regulates them to death.”
Kirby sponsored two bills that, he says, would have taken “baby steps” toward solving problems within the industry. House Bill 1817 would have widened opportunities for debtors to get on a payment plan — curbing the practice, he says, of continuously rolling over the 14-day loans and tacking on new fees each time, which casts a repeat customer further into debt.
“We need to make it more difficult for people to get into trouble using that product, and easier for people to get out of trouble once they’re in it,” he says. “That’s the goal of people on my committee.”
The bill died when House leaders refused to countenance a public showdown between it and H.B. 1020, says Kirby. Since the other side wouldn’t compromise, he says, H.B. 1817 “got defeated by the very advocates who wanted to get something done.”
The increases for fees for the pawnshop industry “wasn’t related to this other in any way,” he says. “That’s just a red herring.”
The number of payday lending outlets in the state rose by 90 percent from 2000 to 2005, according to the Department of Financial Institutions; payday lenders can legally charge as much as 391 percent APR. Meanwhile, the pawnshop business is doing “only fair,” says Kent shop owner Buell.
That’s a shame, says Nancy Robinson, owner of a Redmond pawnshop and president of the pawnbrokers’ association. “If people take the time to figure it out, they realize we’re a good deal,” she says.
A pawnshop’s loan might run around 35 percent APR — approximately the percentage House Bill 1020 would have limited payday lenders to.
“Look at what the pawnbrokers are charging, they’re not being put out of business,” says Aaron Toso, communications director for Communities Against Payday Predators. “When payday lenders say they can’t make money on less, that’s ridiculous.”
By ADAM HYLA, Editor