Jun 10, 2013 Quinn Thomas
Short term lenders may be more flexible in what they can offer Washington state residents if proposed legislation is signed into law.
American Banker recently reported that state lawmakers have introduced a bill designed at easing regulations on short term lending. The industry in Washington has been severely restricted since 2009, when a bill was passed that put limitations on what short term lenders can offer to consumers.
The state's Department of Financial Institutions (DFI) states that current short term lending laws restrict consumer borrowing to $700, or 30 percent of the individual's monthly income, whichever is less. Also, Washington residents are only allowed to take out such loans eight times per year. Stipulations in the current law note that two or more short term loans may be taken out simultaneously.
If passed, the proposed bill would allow lenders to give out a new type of short term loan for as much as $1,500, with interest rates capped at 200 percent. Borrowers would have as long as 12 months to pay off their debts, the News Tribune reported.
The source noted that there is opposition to the proposal from many consumer groups and some lawmakers who believe the interest rates are too high. However, current laws allow for rates as high as 391 percent, according to The News Tribune, and there is a significant amount of evidence that the industry has helped consumers in the state in recent years.
In 2011, the average short term loan taken out in Washington was just $382, data from the DFI showed. Those loans resulted in relatively small fees that averaged $55 that year. Of those that used short term borrowing, less than a quarter took at the maximum number - eight - during the year.
Although many of the critics' main gripe with the industry is that it creates massive amounts of debt for consumers, DFI numbers show that short term lending is usually small in scale and responsibly managed.