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PENNSYLVANIA Bill regulating payday loans advances to Senate



Published: Thu, June 23, 2005 @ 12:00 a.m.



Senate is not expected to consider the bill until fall.

HARRISBURG (AP) -- Lenders of short-term, high-interest "payday loans" would be regulated by the state for the first time under a bill passed by the state House of Representatives on Wednesday.

More than 400 businesses in Pennsylvania provide the service, in which borrowers obtain small cash advances and use their next paycheck as security. Consumer groups have complained that the lenders target the poor and charge exorbitant interest rates for repaying the loans.

The bill, sponsored by Rep. Chris Ross, R-Chester, was developed with assistance from the state Banking Department. The House approved the measure 143-56 and sent it to the Senate, which is not expected to consider it until the fall at the earliest.

Banking Secretary A. William Schenck III said the measure is intended to allow payday lenders to do business in Pennsylvania, but protect their customers from drowning in debt.

"We can't make this business go away, but we can put a law in place which gets the consumer out of the cycle of debt," Schenck said.

Unregulated lending

Pennsylvania is one of 14 states that either do not regulate payday lending or impose interest-rate caps on loans, which discourage the practice by making it unprofitable, according to the National Conference of State Legislatures.

Ross' bill would limit payday loan amounts to $500 for people making at least $2,000 per month. Those making less could only borrow up to 25 percent of their gross monthly income.

Finance charges would be capped at 17.5 percent of the amount borrowed. If a borrower takes a loan every two weeks, interest charges could amount to about 450 percent annually.

Schenck acknowledged that interest charges could be that high under the law, but said that would affect borrowers who pay only the interest on the loan, and not the principal.

Borrowers with outstanding loans over a 60-day period must wait at least seven days after they repay their debts before taking out any new loans, and the loans cannot be renewed more than once, according to the bill.

Ban lending completely?

Rep. Kathy Manderino, D-Philadelphia, said Georgia has banned payday lending, and Pennsylvania should follow suit. She unsuccessfully sought to amend Ross' bill to prohibit the practice.

"We should not be legitimizing an industry with 455 percent interest rates -- worse than loan sharks. We ought to be outlawing it," Manderino said.

The bill was stripped of a provision that would have established a database that the Banking Department would use to monitor lenders' transactions. Irv Ackelsberg, a lawyer with Community Legal Services in Philadelphia, said the original bill did little to protect consumers, and removing the database requirement only further weakened it.

"We just disagree that consumers would be well-served with [the bill] even with database. Without the database, the whole bill's a farce," Ackelsberg said.

Schenck said the administration would not support the bill unless the database requirement was restored.

'No value'

"If they don't give us the database, the law is of no value. We have to have the ability to enforce it," he said.

Rep. Raymond Bunt Jr., R-Montgomery, sponsored an amendment that deleted the database requirement. Bunt said the state could adequately police payday lenders' transaction using traditional credit-reporting bureaus.

Vicki Woodward, vice president of Community Financial Services Association, a national payday-lending industry group, said the loans provide a cheaper, more convenient alternative to people who need quick access to cash.

"It is cheaper than a bounced check, cheaper than making payments on your bill and having to pay late fees," Woodward said. "It's more convenient and much more dignified than having to pawn your personal possessions."




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