Voter initiative being prepared to restrict payday loans

HELENA (AP) Advocates for low-income residents have prepared a voter initiative that would limit the annual interest rate charged by socalled payday lenders to 36 percent. Supporters turned to a ballot initiative after efforts to regulate such businesses failed in the Legislature for the past eight years. "People recognize that it's not fair to charge people such outrageous interest rates," said Rep. Mary Caferro, D-Helena. "People need access to credit, but they don't need to be taken advantage of." A proposed initiative was submitted to state officials Tuesday for legal review. If it is approved and supporters gather enough signatures, the measure could appear on the ballot in 2008. Supporters of the initiative say payday loan companies charge annual interest rates of up to 650 percent, with a $25 fee on a two-week loan for $100. The owner of a short-term loan firm in Billings said if the 36 percent ceiling becomes law, lenders would be put out of business. "If you do the math, nobody could do that and make money," said Bernie Harrington, owner of Easy Money Check Cashing Center. "You'd eliminate that option for the consumer for a short-term loan when they can't get those loans anywhere else."

He said the typical fee is $15 per $100, which works out to an annual interest rate of 400 percent. Payday loan companies usually ask customers to write a check for the amount of the loan and the loan fee. The borrower usually has two weeks to pay off the loan. If it is not paid off, the company can cash the check. Borrowers can end up in a cycle of debt as bad check fees and other fees are added to the debt, said Caferro, who is also executive director of Working for Economic Equality and Liberation, which advocates for low income people. Harrington, who is also president of the Montana Financial Service Centers Association, which represents about 100 "deferred-deposit" lenders, said the loans are not intended to be a long-term financing arrangement. "What this was intended for is for someone who has an interruption in their budget," he said. "The car breaks down, or the child needs to go to the doctor. This was intended to be a bridge, not an ongoing loan."