The payday loan industry has no interest – and no means – of
doing business in Montana anymore.
Shackled by a voter-passed initiative capping the interest rates
they can charge on short-term loans, payday and title lenders are
boarding up stores across the state. Many of them left right after
Novembers election, when voters overwhelmingly passed the
initiative.
That initiative caps such loans at 36 percent, and will become
law on Jan. 1.
Nobodys going to make loans under 36 percent, said Steven
Schlein, spokesman for Community Financial Services Association, a
payday lenders trade group in Alexandria, Va.
And outside of traditional banks, nobody is.
A quick check of 10 payday lenders in the Missoula area found
that seven of them are already gone, including Bamp;R Check
Holders, Express Loans and others.
Montana joins 16 other states that have passed laws or
initiatives curtailing the rates of payday and car-title loans, or
banning such businesses altogether.
Proponents argue the loans harm the poor and elderly, many of
whom are on fixed incomes, and snares some of them into a cycle of
debt and borrowing.
Sheila Rice, executive director of the Great Falls advocacy
group Neighborworks Montana, said there are some businesses we
dont want operating in this state.
Rices group, some religious organizations, unions and others
pushed for the initiative.
The choice between bouncing checks and taking out a payday loan
is a false dichotomy, she said.
Those arent the only choices, said Rice, also a Democratic
state legislator.
Contrary to what the payday loan industry says, Montanans do
have alternatives to what amounts to taking out loans at 400
percent.
Credit unions, she argued, offer payday loan alternatives at
reasonable interest rates.
But taking out such a loan has more stringent standards, the
payday industry counters. Most require the borrower to become a
credit union member; some charge fees that arent counted in the
interest rate; others require a minimum credit score and have
income limits; and because they are not-for-profit, they dont pay
taxes – giving them a competitive advantage over the typical payday
loan store.
Rice agreed the requirements are stricter, but said those in
financial straits have yet other resources.
Some will have to turn to family or friends, she said. but
many, many more people, maybe 100 times more, will be saved from
the payday lending trap.
***
Whatever the reality, payday lenders now say
those living on the margin merely have one less option to avoid
bouncing checks or missing payments, both of which are far costlier
than being charged $15 for a $100 loan.
That is precisely the unintended consequence of what we warned
people about, said Jamie Fulmer, vice president of public affairs
for Advance America, the largest payday lender in the United
States. You just put them in a situation where they are worse
off.
Payday loans sound like a bad deal when theyre put in terms of
annual percentage rate, he said, but the reality is that they help
borrowers avoid crushing bounced-check fees by stores and banks, or
having their utilities disconnected.
Advance America has closed three of its four Montana locations,
and will close the last one in February. There were at least 113
storefronts employing more than 700 Montanans before the initiative
passed, the industry said.
Gone, too, are the four locations run by QC Holdings of Overland
Park, Kansas.
Montana voters were misled into believing that a 36 percent APR
cap would lower the cost of short-term loans, said QC President
Darrin Andersen, in a news release forwarded to the Missoulian.
Todays hard reality is that that cap is forcing cash-strapped
Montana consumers to more costly and credit-damaging options like
bounced checks, late bill payment penalties and unregulated,
offshore Internet lenders.
Rice said education is the next step toward helping consumers
understand their options, and helping them develop sound fiscal
discipline to eliminate the need to live on borrowed money.
We want to tell them what their alternatives are and improve
their money-management skills.
Reporter Jamie Kelly can be reached at 523-5254 or at jkelly
@missoulian.com.
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