Payday paycheck loan cash loan

Rules change for payday loan businesses

Operators of payday loan businesses in Idaho now need special licenses and must follow strict conditions, under a new law that took effect this month.

"I think it's to their benefit," said Mary Hughes, chief of the Financial Institutions Bureau at the Idaho Department of Finance. "I think when the bar is raised, which this law certainly does as far as the kind of practices they can engage in, it helps the industry overall, because I think it improves the reputation of the industry."

In fact, it was a prominent payday loan operator - MoneyTree Inc. - that sponsored the legislation.

"It was an instance where the industry, or at least a portion of the industry, was concerned about establishing a more stringent code of practice, and it appeared to me to be in the consumer's best interest," said Sen. John Goedde, R-Coeur d'Alene, who was the bill's floor sponsor in the state Senate.

Among the new law's restrictions: Payday loans can't be for more than $1,000; they can't be renewed more than three times; borrowers have the right to cancel the loan before the end of the next business day without cost; and lenders must clearly disclose the fees to borrowers as an annual percentage rate.

Stated as an APR, a typical payday loan carries an interest rate of about 300 percent, Hughes said. But it typically is for a small amount, about $100 or $200, and a short term, like two weeks. The typical fee is $15 to $20 per $100.

Idaho's new law doesn't limit those fees or interest rates. Years ago, Idaho had a usury statute that placed limits on interest rates, but it was repealed, Hughes said.

"Since then, especially with the growing numbers of payday and title lenders, typically some legislators are interested in looking at that every year, but it's not met with a wide degree of support," she said. Most lawmakers, she said, seem to prefer to leave rates to the competitive market.

Pat Sullivan, lobbyist for MoneyTree Inc., said, "The bill is very consumer-oriented, and it is geared toward consumer protection."

MoneyTree, founded by Payette, Idaho, native Dennis Bassford, has grown since 1983 to include 87 locations in nearly half a dozen states. Sullivan said the firm adheres to high standards and wants its industry to do the same.

"The Department of Finance established the fact that there were actors out there that they were concerned about," he said.

The lobbyist said a southern Idaho judge and several legislators complained to him about a situation where a lender was suing a borrower who had defaulted on a $100 loan, and was seeking treble damages in small-claims court. "If a guy can't pay $100, he sure can't pay $300," Sullivan said. "MoneyTree does not do that. ... They thought that's a very, very harsh way to handle a business dealing of this nature, as did the Department of Finance."

Payday loans typically require a borrower to issue a post-dated check, and then receive payment for the amount of the check less an up-front fee. The borrower promises to pay the money back before the date of the check, or incur additional fees.

"It's a noncollateralized loan, it's a different instrument," Sullivan said.

The new legislation prevents payday loan operators from suing for treble damages, and also requires background checks and inspections of business records; sets standards to ensure that the firms have the assets to cover their loans; and allows no collateral other than a post-dated check.

Hughes said complaints about violations of the new law, which is now part of Idaho's credit code, can be directed to the department's consumer finance bureau in Boise, at (208) 332-8002.

MoneyTree approached the Department of Finance about the issue and worked with the department on the bill.

"They actually carried the legislation," Hughes said. "But very early on in the process, they sought our input, and we did some of the drafting of it to make certain it still fit well into our credit code."

Idaho's 148 payday loan operators - 23 of them in North Idaho, from Lewiston north - already were regulated under state law with other lenders, but there were few specifics that applied to their industry.

"The credit code has been in effect so long that it predates the payday loan industry," Hughes said.

The department enacted some regulations in 1999 specific to the industry; those are now incorporated into the new, more stringent law.

Virtually all of Idaho's payday loan operators who were licensed under the previous law have applied for the new, specific licenses, Hughes said.

Goedde said the payday loan business has been growing.

"It certainly has in Idaho, and I'm assuming we're representative of the nation," he said. "When people are in need of short-term cash, it seems to be an easy way to get it."

The Coeur d'Alene senator said payday loan businesses seem to function as an alternative to pawn shops, catering to people who need small amounts of cash right away, to tide them over until their paycheck arrives.

"It's a product designed for a very specific purpose," Goedde said. "I guess anyone facing that situation has to evaluate their options and make a decision based on what's available to them. If they have an immediate need for cash and truly see that as a very short-term need, I think this is a very viable product. ... There is no characterization that this is a low-cost product. You pay for the ability to avail yourself of it."