Advance
America, which currently operates 101 payday lending centers in
Pennsylvania, indicated in a press release issued on Monday that it
will no longer be able to issue new payday loans in Pennsylvania after
March 27, 2006. In a February 22, 2006, press release, the company
warned investors that possible impending FDIC action against its
partner bank may prevent it from being able to continue its payday
operations in Pennsylvania. BankWest, Inc. announced on March 6, 2006,
that it would cease its payday loan originations on March 27, leaving
Advance America without a partner. This comes on the heels of FDIC
action against the First Bank of Delaware, which directed the bank to
discontinue offering short-term “payday” loans.
“Payday
lenders trap vulnerable consumers into vicious cycles of debt and
regulators are beginning to notice.” said Jim Swoyer, Consumer Advocate
with the Pennsylvania Public Interest Research Group (PennPIRG). He
continued, “It is no wonder that they are seeking legislative cover
from both FDIC regulations and existing Pennsylvania small loan laws.”
Advance
America is pushing House Bill 1478 which would legitimize payday
lenders under Pennsylvania law. HB 1478 exempts the industry from
existing Pennsylvania protections as well as FDIC oversight. A February
committee vote on HB 1478 was postponed until mid-March.
The Pennsylvania State Senate Committee on Banking and Insurance is
also considering Senate Bill 101. SB 101 would tighten up the brokering
loophole payday lenders currently exploit to evade Pennsylvania
consumer protection laws. SB 101 would eliminate the industry’s ability
to ignore sensible limits on the interest rates they can charge, and it
would help borrowers avoid the destructive debt trap payday lending
almost invariably creates. Conversely, HB 1478 opens the door statewide
for payday lenders to engage in some of the most predatory aspects of
the industry. Not only would HB 1478 insulate payday lenders from many
consumer protections under Pennsylvania law, it would allow the
industry to operate outside the very guidelines the FDIC enforced
against the First Bank of Delaware.
In
most cases, payday lenders make no determination of a borrower’s
ability to repay, one of the factors the FDIC considers in determining
whether a loan product is “predatory.” 99% of payday loans are issued
to repeat borrowers, and payday lenders generate the overwhelming
majority of their profits from the debt traps created by triple-digit
interest rates.
