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Pennsylvania One Step Closer to Regulating Payday Loans

The Pennsylvania Capitol
The Pennsylvania House of Representatives has approved a bill designed to regulate payday loans. The bill, which was put forward by Rep. Chris Ross, R-Chester, won with a 102-90 vote.

Democrats in the state resoundingly voiced opposition to the bill and largely voted against it.

Now that it has passed in the House, the bill, more formally known as HB 2191, will move on to a vote in the State Senate.

In its current form, the bill mandates that payday loan companies must obtain licenses to continue to operate in Pennsylvania. Additionally, rules are to be implemented that will limit borrowers from obtaining short-term loans in excess of 25 percent of their gross monthly income or $1,000, whichever is less.

The new legislation would also allow lenders to charge 12.5 percent interest in addition to a $5 fee on payday loans. With this amount of interest, a $300 payday loan would cost $342.50 at the conclusion of a typical 14-day term.

The bill would also prevent borrowers from rolling over already existing balances into new loans. Instead, it would force payday loan companies to offer a repayment plan at no additional charge.

The repayment plan would give borrowers four two-week periods to pay the outstanding principal. In essence, borrowers will receive four-times a typical payday loan’s lifetime to repay, should they use this extended payment plan.

In order to moderate this, the bill would prevent borrowers from taking out payday loans from more than two companies at one time.

Finally, Payday lenders would also need to adhere to physical limitations. Their geographic locations would be prohibited from being close to casinos, racetracks and military installations.

Rep. Ross described the bill’s proposed regulations as a safer option for potential borrowers since it will limit finance charges, loan amounts and offer options for extended payment plans.

One of the bill’s corporate supporters is Cash America, the same company that was denied by the state Supreme Court from making online payday loans in 2010. The court’s opinion was that Cash America’s loans were “a predatory lending practice."

Another company with a vested interest in this bill is Axcess Financial Services, a Cincinnati-based payday lending company with over 1,000 locations across the United States. According to company lobbyist John Rabenold, Axccess will open locations in Pennsylvania if the bill becomes state law.

Currently, Axcess Financial Services does not operate in Pennsylvania due to the limit on interest rates.

"That cap is so prohibitively low on a small-dollar, short-term that you lose money if you were to try to make those loans available," said Rabenold according to the Pittsburg Post-Gazette. "It's just not the way that credit works."

Currently, two-week loans, the most common payday loan made available by short-term lending companies, are capped at an annual percentage rate of roughly 24 percent. Payday loan companies argue that this cap is too low, preventing profitability required to operate on a large scale across Pennsylvania.

Concerning the nature of payday loans Rep. W. Curtis Thomas, D-Philadelphia said, "It is a debt trap, designed for people who are already struggling.”