11-Feb 2009

Consumer advocates said Monday that payday loans need stricter regulation, arguing that new legislation is needed to rein in the industry.

House Bill 396 is aimed at both payday and title loans. Rep. Bill Wilson of Great Falls, the sponsor, said he wants to cap interest rates at an annual percentage rate of 36 percent.

Democrat Wilson said the industry charges effective rates of over 700 percent on the short-term loans - making millions of dollars a year off Montanans with nowhere else to turn.

"This industry thrives on the victimization of vulnerable repeat customers," the Democrat told the House Business and Labor Committee. "The rates these lenders charge is unconscionable and amounts to nothing more than legalized loan sharking."

Supporters said 18 states have already placed a rate cap of 36 percent on the loans. They said the federal government has also placed the same cap on any such loans given to military personnel.

The industry said it doesn't charge interest rates, but instead charges a set fee for the service. The business owners say they would not be able to survive under Wilson's proposal.

They argued an annualized interest rate cap of 36 percent would amount to just a few dollars on a typical two-week payday loan - not nearly enough to make the business work.

Source:
Forbes.com