If your friend told you that she could get a payday loan of $700, and that the interest would be 36 percent, plus a small loan origination fee of 15 percent, plus a monthly maintenance fee of 7.5 percent, you might advise her to get out her calculator. Here’s why: That $700 loan could cost her $1,687, even if she makes all her payments on time. Right now, under state law, she can take out the same loan, and it will cost her $795.
Which loan would you choose? That seems like an easy question to answer. But a lot of legislators, Democrats and Republicans, have failed this test in Olympia. They are sponsoring a bill, hb 1922, to enable MoneyTree to sell “small consumer installment loans” with high interest, maintenance fees and origination fees.
Why would these legislators — 36 in the House and 12 in the Senate, both Democrats and Republicans — want to enhance the revenue of the payday loan industry? State Rep. Larry Springer, DKirkland, is the prime sponsor of this legislation. He said, “Our current payday lending system is broken. Too often it leaves consumers in a never-ending cycle of debt.” Unfortunately, hb 1922 makes matters worse, not better, for borrowers.
Rep. Springer may not know how well the law that he helped pass in 2009 reformed payday loan practices. That law leashed in the payday loan industry, with new standards that made sure people with loans did not get pushed deeper and deeper into debt. The industry didn’t like it, as the total amount of loans fell from $1.3 billion in 2009 to $300 million in 2013. The amount of fees the industry collected dropped by $136 million annually. The number of payday loan storefronts has fallen from more than 600 in 2009 to fewer than 200 now. That’s a lot of money for people to keep in their communities, rather than giving it to MoneyTree.
But very quietly last year, the owners and executive staff of MoneyTree — principally the Bassford family — dropped $81,700 in campaign contributions to both Democrats and Republicans. Many of the beneficiaries of this largesse are sponsoring the current MoneyTree bill, hb 1922. In fact, both Rep. Springer and the bill’s chief sponsor in the Senate, Sen. Marko Liias, D-Mukilteo, received $3,800 from the Bassfords. What would be the result of the bill that Rep. Springer and Sen. Liias are pushing? For a $700 loan, the poor person (literally) would end up paying $987 in interest and fees, as well as the original one-year loan. From 2017 on, the fees on these loans would be automatically raised through the consumer price index.
MoneyTree’s investment of $81,700 in campaigns could result in hundreds of millions of dollars in revenue. That’s quite a cost-benefit equation for the Bassfords. How about the working people who take out these loans? Their average monthly income is $2,934 or about $35,000 a year. One $700 MoneyTree loan could eat up three-fifths of a month’s income. The legislation pretends to be beneficial to borrowers by requiring this notice to be included in loan documents: “A SMALL CONSUMER INSTALLMENT LOAN SHOULD BE USED ONLY TO MEET SHORT-TERM CASH NEEDS.” Now, isn’t that helpful? What is not helpful is that this bill has already been railroaded through the House Committee on Business and Financial Services.
Our current payday loan system may be broken from MoneyTree’s perspective. But while it is not perfect for low-income borrowers, it works, and it is a lot better than the previous system. Perhaps some responsible legislators will slow down the fast-track on the MoneyTree bill and put people ahead of MoneyTree profits.