Bill would legalize payday lending in Pa., labeled predatory by critics
ACE Cash Express is the nation's second largest payday lender, but customers who want a financial lifeline until their next paycheck won't get help in any of its 19 Pittsburgh-area stores.
Payday loans are illegal in Pennsylvania, and that has limited Ace to cashing checks, selling money orders and processing bill payments for its customers, among other services.
But the restrictions on a potential cash-cow for a business such as ACE could change because of renewed efforts by the industry to legalize payday lending in Pennsylvania. It mirrors a push elsewhere in the country to allow loans that critics say take advantage of needy consumers.
A bill remains in the state Senate that could legalize payday loans in Pennsylvania that critics say would allow annual interest rates as high as 300 percent. The bill follows a similar one that passed the state House in 2012.
“We've seen nationally since 2005 that payday lenders have continued their push to bring back these loans,” said Diane Standaert, senior legislative counsel at the Center for Responsible Lending, a nonprofit in Durham, N.C., that opposes payday loans. “There have been a lot of efforts in the states, and they are continually rejected.”
Pennsylvania has an anti-payday lending law and a 2010 state Supreme Court decision backed it up. The law caps interest rates on short-term loans at 24 percent.
Critics say the high-rate lending practices most often gouge lower-income wage earners with double- or even triple-digit interest rates and keep consumers in debt. Legalizing payday lending is opposed by veterans, seniors and faith groups in the state.
The move to make these high-interest loans legal happens as some payday lenders have circumvented state prohibitions by using the Internet to solicit borrowers — an issue that is drawing the attention of regulators and legislators.
State Rep. Chris Ross, R-Kennett Square, a supporter of efforts to legalize payday loans in Pennsylvania, points to the flood of solicitations by online payday lenders in television ads and on the Internet as a reason why lawmakers remove the ban in Pennsylvania. Legalizing the business, he says, would allow state oversight and provide better protections for consumers.
“I believe there is a need for a properly structured, short-term lending in Pennsylvania,” said Ross, who sponsored two bills to legalize and regulate loans that passed the state House in 2012 and 2004, but not the Senate. “We've got the Internet, for which there is no effective means of regulation to protect consumers.”
Ed Novak, spokesman for the state Department of Banking and Insurance, said tracking down Internet lenders is “like trying to nail Jell-O to the wall, but when we do find it, we take all measures we can to protect consumers.” Even so, Novak said the department is not seeing much activity. “We made sure some of the companies got the message,” he said.
Payday lenders that charged high rates left the state in 2006 after the Federal Deposit Insurance Corp. issued strict rules for banks involved in the practice. Until then several hundred payday outlets operated in the state by affiliating themselves with out-of-state banks — a loophole that allowed them to circumvent state laws that prohibited such loans.
Federal regulators forced the banks to end the partnerships with payday lenders. In 2010, the state Supreme Court backed it up, holding that loans made in violation of existing law are illegal, even when made online.
Some companies that provided payday loans are still here. Nearly 100 offices are licensed to provide cash access services such as payroll and other check cashing, money orders, bill payment and debit cards funded by paychecks, government benefits or tax refunds — all for a fee.
ACE Cash Express is the largest in the Pittsburgh region that provides those services. It has 1,600 offices in 35 states and the District of Columbia nationwide, and still does payday lending in 31 states. Advance American, the largest payday lender, does not operate in this region.
ACE is not involved in efforts to legalize payday lending, but it did support the failed legislation in 2012, said Eric C. Norrington, spokesman at the company's headquarters in Irving, Texas.
“We asked our customers to send letters if they were interested in getting access to short-term credit, Norrington said. “We thought there was a possibility it could pass, and it would be good if legislators heard from their constituents.”
Tim Hernandez, 23, of Dormont, a Starbucks barista, Downtown, said he cashes all of his paychecks in ACE, paying a 3 percent fee. Hernandez said he wouldn't be interested in a payday loan like ACE offered here in the past. “The problem with that is you can end up owing money for a long time.”
Pennsylvania lawmakers are not the only ones looking a legalizing these loans. In 2008, payday loan advocates placed initiatives on ballots in Ohio and Arizona asking voters to approve the products, Standaert said. “But the message was clear in both states, voters overwhelmingly said no.”
The current legislation to legalize payday loans in Pennsylvania was passed by the Senate Banking and Insurance Committee in June by an 8-6 vote. It rolls back the state's longstanding protections against predatory payday loans, according to the Coalition to Stop Predatory Payday Loans in Pennsylvania.
“Pennsylvania has been recognized by both the Pew Charitable Trusts and the Department of Defense for having among the strongest laws in the nation to keep out predatory payday lenders,” according to the coalition.
The bill's sponsor, Sen. Pat Browne, R-Lehigh Valley, could not be reached for comment.
Ross' bill in the last legislative session passed the House by a 102-90 vote in June 2012, but saw no action in the Senate. Ross says the availability of Internet loans is the reason a bill regulating them should be adopted.
“I got my bill through twice, so now it's the Senate's turn,” Ross said.
Opposition group Stop Predatory Payday Loans in Pennsylvania says on its website that more than 100 groups as members oppose the bill. SB 975 allows a total of $38.22 in fees on a $300, 14-day payday loan, which is equal to 332 percent annual percentage rate, the group says.
Ross contends that level of fees is similar to fees on overdue credit card and utility bill payments.
“If there's going to be some kind of short-term lending, it should be consistent with those fees,” he said. “There should be an alternative for someone who is tight for money.”
John D. Oravecz is a staff writer for Trib Total Media.