HELENA – Supporters of an initiative to cap interest rates on payday and title loans are making a final campaign push after the measure’s opponents failed to convince a judge to remove it from the Nov. 2 ballot.
Groups representing the poor, the elderly and women are among those who want to put an end to short-term loans that charge as much as 650 percent annual interest, saying it’s a predatory practice aiming to trap vulnerable segments of the population.
“If you’re on a fixed income and you have a fairly fixed set of expenses, the extra $25 you’re paying in interest means that’s $25 less you have to pay for medicine or groceries,” said Claudia Clifford, advocacy director for AARP Montana. “This isn’t the occasional $100 to buy a Christmas present. This becomes a chronic problem for people.”
The deferred-deposit lenders say their interest rates are set by the state and their industry is closely regulated by the Montana Division of Banking and Financial Institutions. They say the initiative supporters don’t understand the industry or their customers, who are usually trying to bridge a temporary gap in their checking accounts.
The initiative’s proposed 36 percent cap would mean lenders could only charge a $1.38 fee on a two-week loan worth $100, a rate that would drive them out of business.
“It puts us out on the street and leaves our customers with no place to go,” said Bernard Harrington, the owner of six EZ Money Check Cashing stores. “I think there are people out there that have a payday loan as part of their portfolio, if you will. But I’m not sure it’s the payday loan that puts them over the edge.”
Harrington and a group of other payday lenders unsuccessfully sued to have the initiative taken off the ballot. District Judge C.B. McNeil of Polson ruled Thursday they did not prove claims that signatures had been improperly gathered in the certification process.
Here’s how a payday loan works. A person who finds himself short on cash can borrow up to $300 for a short period, usually two weeks. The lender can charge up to 25 percent of the value of that loan — that’s $75 in the case of the $300 loan — which is a 650 percent annual rate. The borrower writes the lender a postdated check for $375, the amount of the loan and the fee, which will be cashed after that person gets his next paycheck.
Matt Leow, field director for 400 Percent is Too High — Cap the Rate, a political committee formed in support of the ballot measure, said the danger is in the borrower needing to take out another loan to pay off the first loan, then digging a deeper and deeper hole.
“Lenders talk about this being an emergency loan, but what we see is that they get stuck and end up coming back over and over again,” he said.
Last year in Montana, 34,790 people took out 149,496 loans worth $38.7 million from licensed deferred-deposit lenders, according to industry reports compiled by the state agency.
That means each of those borrowers on average took out more than four loans in a year. In addition, 6,339 of those borrowers took out 13 or more loans in 2009.
That large number of people taking out back-to-back loans shows the debt trap is real for many Montanans, Leow said.
But industry regulators don’t see it that way.
“We’re not able to extrapolate whether the borrowers are in any more of a serious cycle of debt than any other borrower,” Division of Banking and Financial Institutions Commissioner Annie Goodwin said.
Goodwin added that there has only been one complaint filed against a payday lender licensed with the state this year and that allegation was found to be groundless.
Tom Jacobson, executive director of Rural Dynamics Inc., said the lack of formal complaints filed with state regulators means little. The Great Falls-based consumer counseling credit service company works with a lot of people who have been trapped by payday lending, he said.
They are usually more worried about solving their immediate financial crisis than complaining to the state, he said.
“This population is not going to go out seeking somebody to complain to because they’re not feeling empowered to begin with,” Jacobson said.
Two political committees have registered with the state Commissioner of Political Practices in opposition of the ballot initiative, and Harrington’s company has contributed more money and services to those groups than any other lending company has.
A few out-of-state companies with operations in Montana have also made contributions, but Harrington said he’s not sure how much more will be coming before the election.
“We have not seen a lot of participation by some of the national companies,” Harrington said. “There’s been no discussion about more dollars coming into this state.”
Leow’s political committee has seen donations from out-of-state groups such as the Western States Center of Oregon and the Center for Responsible Lending of North Carolina. The committee’s biggest donors have been the AARP of Montana and the Montana Community Foundation.
Campaign finance report updates are due later this month. According their last filings in September, initiative supporters had $85,644 in the bank while the two opposition groups had a combined $67,274 left to spend.
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