By: Kara Nuzback
May 4, 2012
Dover -- A bill to limit the number of payday loans a borrower can take passed the House this week, amid continuing controversy. Proponents say the bill is a step toward regulating an industry that takes advantage of people with financial hardships, but others say working people with no collateral need payday loans when there is nowhere else to turn.
House Bill 289, sponsored by Rep. Helene Keeley, D-Wilmington South, would allow borrowers only five payday loans per year. If the bill passes, it would also establish a database to track the number of short-term consumer loans an individual has obtained in a year, and the Banking Commissioner would have to provide a report on the information to the General Assembly.
Greg Wilson, of Delaware Community Reinvestment Council, approached Keeley to propose the legislation. "It's basically an unregulated industry," he said. "We felt it was important that we do something."
The Reinvestment Council, which has an office off Route 9 in Georgetown, offers credit, tax and foreclosure counseling. Wilson said some people take out nine loans in one year and become mired in a cycle of debt. "They are never able to pay off the principal," he said.
Payday loans are supposed to be a short-term solution, Wilson said. "In reality, they're not," he said.
Wilson said New Jersey, Maryland and Pennsylvania prohibit pay day loans altogether. "This is a modest bill," Wilson said. "It still affords people the opportunity to obtain a short-term loan."
Wilson said the bill is designed to help the economy, so people can save money for college or buy a home instead of perpetually paying off loan interest. Wilson said Keeley tried to pass a similar bill to cap the interest rate charged on payday loans, but she could not get the bill through the General Assembly.
"The goal is to provide an understanding as to how pervasive payday lending is in the state of Delaware," Wilson said.
HB 289 passed the House in a 26-7 vote, May 1. House Majority Leader Pete Schwartzkopf, D-Rehoboth Beach, said he voted against the bill. "There was no compromise. There was a better way to do this," he said.
Schwartzkopf said he thinks the bill should establish a central database that is accessible to lenders, and limit borrowers to one loan at a time instead of five loans per year. "It shouldn't become illegal after five times," he said. Schwartzkopf said there is nothing in HB 289 to keep borrowers from shopping for loans from multiple lenders at once.
Schwartzkopf said some Delawareans take payday loans because they have no collateral and are ineligible for a loan from the bank. "There's a need for it," Schwartzkopf said. "These payday loan companies fill a niche."
Schwartzkopf also said he voted against the bill because he has never received a complaint about payday lending in the 14th District. He said after the bill was introduced, he visited Advance America, a payday lender, on Route 1 in Rehoboth Beach, where employees walked him through the process of taking out a loan.
Schwartzkopf said before visiting Advance America, he thought payday lenders were similar to loan sharks. "I was pleasantly surprised. I changed my whole opinion of the place," he said.
Schwartzkopf said in previous sessions, Keeley has tried to introduce a bill to cap the interest rate on payday loans. "The banking industry does not want caps on interest rates," he said. Schwartzkopf said the banking industry is important to the economy of the state. "No legislator in their right mind would go up against the banks," he said.
Lynne Betts is a founder of St. Vincent de Paul's Seaford location, and she has been volunteering for the organization to aid the poor for 12 years. The problem is not as prevalent in eastern Sussex, Betts said. "They set up shop where there is economic hardship," she said.
Betts said in the past three years, the problem of payday lending has grown in Seaford. "We have no DuPont anymore, and now we have nine payday lenders," she said.
Interest rates have also gone up in the last three years, Betts said. Three years ago, an interest rate could be as high as 125 percent, she said. "That's nothing compared to what the new loans are," she said. Delaware imposes no limit on the interest rate lenders can charge.
Betts said her average client at St. Vincent has three or four outstanding payday loans at a time. "I don't think we have even dealt with a client that only had one," she said. "It's just this revolving door."
The people taking the loans are not deadbeats, Betts said. "You have to have a job to get one of these loans," she said. Betts said high mortgage rates and rising gas prices over the past few years have increased the cost of living. "People's expenses have outgrown their income," she said.
The legislation could be more far-reaching, Betts said. "It's a start," she said. "It's not a partisan thing; it's just the right thing to do."