Pennsylvania lawmakers continue to try to address the financial repercussions that can be caused by payday loans in the state. The Senate Banking and Insurance Committee is holding hearings on legislation that would regulate the "payday lending" industry which lends small amounts of money for a short period of time at high interest rates.
Payday lenders say they need to charge high interest rates which sometimes reach as high as 400 to 600 percent as well as monthly fees in order to cover their costs. Another complaint is that payday lenders will allow borrowers to take out new loans to pay off old ones, deepening their debt. Senate Bill 1071 would limit the annual percentage interest rate to 36% and limit any fees to 10 percent of the amount borrowed. The measure would allow for an extended repayment plan; would only permit one new loan on top of the old loan; and would allow the borrower to cancel the loan within 24 hours with no penalty.
Senator Mike Stack, (D-Philadelphia), says he doesn't like the bill and instead of regulating an industry that gouges consumers, he'd rather see those who need short-term loans go to lenders like credit unions, where the terms are more reasonable and borrowers can also get help straightening out their finances.
In 2006, the state partnered with the Pennsylvania Credit Union Association to create the "Better Choice Loans" program as an alternative to payday loans. 72 credit unions now participate in the program.
In 2008, the state began requiring Internet payday lenders to be licensed by the Commonwealth.
Stack says the state should not take the attitude of "buyer beware" when it comes to payday loans..."You say these folks know how much the interest is, it's posted on the wall. When someone is desperate, you might as well say the interest rate is a million percent--people aren't going to comprehend what that means. So we really have to look out for consumers."