Payday loans may be returning to Pennsylvania

Proposed law would allow payday loans.

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A controversial issue affecting families on the financial brink is being debated in Harrisburg. Some lawmakers want to allow payday loans to return to Pennsylvania.

Payday lending is considered a scourge by advocates for the poor and working class. They say the loans crush vulnerable families by trapping them in an endless cycle of debt at outrageous interest rates.



Payday loans are small-dollar, short-term loans due on the borrower's next payday. They aren't illegal in Pennsylvania, but you don't see payday lending stores here because a state law caps interest rates at a number that doesn't make the loans profitable.


Rep. Chris Ross says that means the current law isn't good enough and the new rules proposed in House Bill 2191 are needed to protect people.

This is typical Harrisburg.

Our leaders think the way to stop what seems to be a relatively small problem is to expose the greater public to the potential hardships of payday loans by permitting lenders to set up shop in poor cities like Allentown.

If out-of-state lenders are making illegal Internet loans, the better answer is better enforcement. There will be rogues to any law. You can't out-regulate them.

At a legislative hearing Thursday in Harrisburg, no one offered hard numbers on how many people have been snookered by oppressive online loans, or how many people are crossing state borders to get loans in states that allow them.

Consumer advocates testified they haven't received many complaints. In four years as the Watchdog, I can't recall hearing from one person burned by a payday loan. The state Department of Banking told me it hasn't been swamped with cries for help, either.

Members of the House Consumer Affairs Committee repeatedly stressed Thursday that people don't always have better options when they have to pay an unexpected bill. I think that's why they're supporting this legislation. I think it's more of a marketplace decision than a consumer protection one.

"What's the alternative?" Rep. Robert Godshall asked opponents of the bill. "There are times in everybody's life when they're up against it and they need to make payments."

"It's the consumers that are determining the need or the lack thereof," said Godshall, a Montgomery County Republican who is committee chairman.

John Rabenold, an executive with Axcess Financial in Cincinnati, testified there is a need and that's why Pennsylvania residents visit his company's payday loan stores in Ohio and Delaware.

"We service Pennsylvanians every day without complaint," said Rabenold, whose great-grandfather owned a hardware store in the Trexlertown area.

Supporters testified that people likely to use a payday loan might not qualify for traditional bank loans. They might not have credit cards, or might have maxed them out. Their options now are to skip payments, pawn possessions or bounce checks.


Religious, fair housing and community advocacy organizations oppose the bill. They say the best way to protect consumers is to keep the law as it is and keep payday loans out of the reach of most state residents.

The cost of a payday loan may be small in terms of dollars, such as the $42.50 that could be charged for a $300, two-week loan under the proposed law. But that equals 369 percent interest when computed as an annual percentage rate, critics say.

"The lenders like to talk about payday loans as the equivalent of throwing a drowning man a credit lifeline, but data from other states where 300 percent loans are legalized show that it's more like throwing a drowning man a leaded anchor," Kerry Smith, an attorney for Community Legal Services in Philadelphia, told me.

Opponents said people do have other options, such as negotiating payment plans with creditors and borrowing from friends and family. They said the vast majority of Pennsylvanians have been getting by without access to legal payday loans.

"It's a situation that we don't have in Pennsylvania right now and we don't need to have," testified Ray Landis of the state chapter of AARP.

The primary argument against payday loans is they can spiral into a lengthy cycle of debt. Loans are secured by writing a post-dated check or providing electronic access to your bank account. When the loan is due, the lender cashes your check or withdraws the money.

"The automatic repayment in full is likely to leave the borrower short of funds and likely to re-borrow again during the next pay period, creating a cycle of perpetual debt from what may have begun as a simple short-term need such as a car repair or broken water heater," testified Greg Simmons of Action Housing in Pittsburgh.

Ross, a Chester County Republican, told me that proposed amendments to the bill would address that concern.

The amended legislation would forbid people from rolling over a loan balance into a new loan. Instead, at least once a year, each borrower must be offered an extended repayment plan at no additional charge.

Consumer advocates say a ban on rollovers is nothing more than a play on words. They said people will just pay off the old loan and take out a new loan as soon as they can, technically avoiding a rollover, as the bill requires only a one day waiting period before getting a new loan.

"This bill is not a consumer protection measure," Simmons said.

More than 50 legislators have signed onto the initial version of the legislation, including Democrat Joe Brennan and Republican Julie Harhart, whose districts cover parts of Lehigh and Northampton counties.

More information on the issue is on my blog at


House Bill 2191 (amended)

• Finance charge of 12.5 percent, plus $5 verification fee

• Can borrow up to 25 percent of gross monthly income, up to $1,000

• Loan rollovers prohibited

• One business day waiting period to take new loan

• Lenders must be licensed and pass criminal background checks

• Lenders must post bond that could be tapped by injured customers

Source: proposed amended House Bill 2191
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