No on SB 5899: Payday loans don’t solve crisis, they create one

EDITORIAL

(March 13, 2015) — Remember two years ago, when the Republican-controlled Washington State Senate brought our state to the brink of a government shutdown?

The Senate had a list of ideological policy bills upon which they demanded House action before they would agree to an operating budget. After two overtime sessions, cooler heads finally prevailed and Gov. Jay Inslee signed a deal just hours before the budget cycle ended on July 1, prompting The (Everett) Herald to editorialize, “Ideology and partisanship, especially in the Senate, supplanted pragmatism.”

Good times… good times.

One of those 2013 ideological policy bills is back in 2015, and the more solidly Republican-controlled Senate just sent it to the House. It’s SB 5899, which would relax consumer protections against short-term high-interest payday loans that push low-income working families deeper and deeper into debt. The bill would replace the state’s limited payday loans with “installment loans” that would allow up to a year’s worth of interest and fees.

Washington’s current law limits payday loans to $700 per loan and no more than eight loans per year. Borrowers are charged a $95 fee and typically must pay it off in two weeks. Under SB 5899, a $700 loan would cost borrowers up to a total of $1,195 in principal, interest and fees if paid off in six months, and up to a total of $1,579 if it took a full year.

Organized labor and other advocates for low-income working families have joined anti-poverty and consumer groups in opposing SB 5899. Why? Because payday loans don’t solve a financial crisis, they create one. Borrowers often must take a second loan to pay off the first, and so on, leading to a spiral of debt that sucks them dry.

It also harms the economy.

A 2013 study by the Insight Center for Community Economic Development found that the national burden of repaying payday loans in 2011 led to $774 million in lost consumer spending, the loss of more than 14,000 jobs, and an increase in Chapter 13 bankruptcies. The study found that each dollar of interest paid to payday lenders subtracted $1.94 from the economy due to reduced household spending, while only adding $1.70 to payday lending establishments. It’s an anti-multiplier effect. For every dollar of interest paid in payday loan interest, the economy lost a quarter.

Remember last fall’s election, when voters were demanding greater access to short-term high-interest loans? Neither do we.

The 2015 legislative session was supposed to focus on last fall’s big campaign issues: funding basic education and transportation, addressing income inequality, and making sure our tax dollars (and tax incentives) are efficiently spent. How did promoting payday lending get in there again?

It began last fall, all right. But it didn’t come from the public, it came from Seattle-based payday lender MoneyTree.

Jim Brunner of The Seattle Times wrote an explosive story last week outing Moneytree as leading the full-court lobbying press to relax payday lending laws. He reports that the effort began last fall when the company and its executives, who traditionally direct their political contributions to Republicans, “sought to strengthen ties with Democrats, boosting donations to Democratic legislator campaigns in last fall’s elections, and quietly employing a well-connected Seattle public-affairs firm that includes the political fundraiser for Gov. Jay Inslee and other top Democrats.”

On Tuesday, a heroic effort was made by most of the Senate’s Democratic minority caucus to stop SB 5899 or amend it to lower the interest and fees payday lenders can charge. But those efforts were thwarted, and after a passionate debate that lasted more than two hours, the bill passed the Senate, 30-18, with Democratic Sens. Brian Hatfield, Steve Hobbs, Karen Keiser, Marko Liias, and Kevin Ranker joining all Republicans (except Sen. Kirk Pearson) in voting “yes.”

Now it heads over to the House, where its companion bill died without a floor vote after Wednesday’s cutoff deadline. The question is, given Moneytree’s… outreach… to Democrats, will it again die in their House? Will it again become embroiled in end-game budget negotiations to try to force its passage?

We hope not.

We agree with state Attorney General Bob Ferguson, who sent a letter to legislators opposing the bill, saying our state’s payday-lending system includes important safeguards for consumers “and does not need to be overhauled.”

We also agree with The (Tacoma) News Tribune, which wrote that payday lenders’ efforts to pass SB 5899 “have nothing to do with helping poor people and everything to do with their bottom line. Lawmakers should see this legislation for what it is and reject it. If it passes, Gov. Jay Inslee should veto it.”

The Stand is the news service of the Washington State Labor Council, AFL-CIO.