Pennsylvania’s consumer protection laws effectively bar payday lenders from operating in the state, but they can’t stop unlicensed companies from targeting Pennsylvania consumers with their ads. By locating out-of-state and doing business online, State Rep. Chris Ross (R-Chester) says these unregulated businesses can trap Pennsylvanians in a cycle of debt with their high charges.
Ross has introduced a bill that would create new short-term lending regulations in hopes of providing Pennsylvanians with a safer, less costly option. “These are things that we’ve worked at with the Department of Banking and my colleagues in the Senate to try and provide as much protection as possible,” Ross explained to Radio PA.
HB 2191 would cap these short-term loans at 25% of a borrower’s paycheck, and require that an existing loan be paid off before a new one is obtained. Another provision would enable eligible borrowers to obtain free credit counseling.
But critics believe the proposed cure is actually worse than the problem. “It bumps the interest rate that you can charge on a small loan from where it is currently, which is around 24%, to 369%,” says Keystone Research Center labor economist Mark Price. “That is a remarkable increase that will lead to the dramatic expansion of payday lending.”
Price is referring to the loan’s annual percentage rate (APR). He uses the example of a $300 dollar, two-week loan. Under the Ross bill, the borrower would be charged roughly $43-dollars. Crunch the numbers for the course of a year and it brings you to the previously cited APR.
“We have the prospect now of hundreds of these payday lending storefronts opening up all across the commonwealth,” says Price.
Ross says unlicensed payday lenders are currently charging twice the maximum his bill would allow. HB 2191 has already cleared the House Consumer Affairs Committee with a bipartisan vote of 20 – 4. It now awaits further action on the House floor.