The Inclusive Economy
Curbing Predatory Lending: State & Local Legislative Updates
By Ethan Geiling on 05/16/2012 @ 04:00 PM
Predatory small dollar lending strips wealth from financially vulnerable families and leaves them with fewer resources to devote to building assets and climbing the economic ladder.
A number of cities and states have recently enacted or are currently considering policies to curb predatory small dollar lending, and in particular, payday lending. At the local level, county supervisors in Santa Clara County, California recently approved a ban on new payday lending operations. The San Jose City Council approved a similar ban at a meeting on Tuesday. This recent victory makes San Jose the largest U.S. city to limit payday lenders and the first city to prohibit them from opening in low-income areas.
At the state level, the Delaware legislature is considering HB 289 – a bill that would limit borrowers to no more than five payday loans in a 12-month period and create a statewide payday loan database. The Rhode Island Payday Lending Reform Coalition is supporting legislation that would cap interest rates at 36% APR. Similarly, Missourians for Responsible Lending submitted 180,000 signatures to the Secretary of State for a ballot initiative that would cap payday loans at 36% APR. In late 2010, advocates in Montana were able to successfully cap predatory loans at 36% APR through a statewide ballot initiative, demonstrating that the power of ballot initiatives to create policy change.
Moving in the opposite direction is Pennsylvania, which currently caps payday loans, but is considering a bill to raise the cap. A group of advocates, led by STOP Predatory Payday Loans in PA, is actively opposing the measure.
Many states have already recognized the negative impact of predatory small dollar lending. The majority of states regulate these practices in some way, although laws offer varying degrees of protection. CFED's Assets & Opportunity Scorecard examines states' policies on three predatory small dollar lending products: payday loans, car-title loans and abusive installment loans. The Scorecard also looks at whether states include predatory lending in basic consumer protection laws.
Ten states have prohibited or capped all three types of predatory loan products and include short-term lending in basic consumer protection laws. Fourteen states do not effectively regulate any of the three predatory loan products, although nine of these states include short-term lending in basic consumer protection laws. All other states protect consumers against some, but not all, predatory short-term loan products. Below is a map showing the strength of states' policies across the country.