Friday, February 2, 2007

Jeff Mangan served two terms in the Montana House (1999-2002) and one term in the Senate (2003-2006).

Here’s his recent piece in The Montana Standard, paraphrased:

There is a misconception that there is currently no regulation of payday lending in Montana. As a former legislator from Great Falls, I wrote and sponsored the first piece of fast cash loan lending legislation in Montana in 1999.

The law is called the Montana Deferred Deposit Loan Act, and it does regulate the industry and provide consumer protection in Montana. Current regulations include:

- A maximum loan amount of $300.

- Personal loans cannot be refinanced or rolled over.- The maximum fee allowed is 25 percent of the loan amount.

- No additional fees or charges are allowed besides those permitted by the act.

- Consumers have the right to rescind or cancel the loan within 24 hours at no cost.

- Fast payday advance lenders must provide clear and complete disclosure of terms, fees, and annual percentage rates (APR’s) in accordance with federal laws.

- Every lender is examined by the state on an annual basis to assure compliance.

- Consumers who default on bad credit cash loans cannot be prosecuted criminally.

Proponents of House Bill 29 agree that Montana consumers need and use the services provided by lenders. This is evidenced by some lenders being in business for more than 17 years in Montana. Our neighbors choose payday loans over other alternatives because a payday loan is typically less expensive.

As proponents of HB 29 try to shock you with interest rates, a simple comparison to the unfortunate alternatives makes the choice an easy one for those faced with difficult situations.

Consider these numbers: A $100 deferred deposit cash loan with a fee of $15 translates into an APR of 391 percent; a $100 average overdraft fee of $27.40 equals an APR of 701 percent; a $37 credit card late fee on $100 — APR of 965 percent; a late/disconnect fee of $46.16 on a $100 utility bill — APR of 1,204 percent, and finally, a $100 bounced check with an fee of $54.04 translates into an APR of 1,409 percent.

HB 29 proposes four major changes to current law:

1. A36-percent interest rate cap on loans
2. Creation of a state- maintained database paid for by lenders to track borrowers
3. Allowing a four- to five-month repayment period in case of a payday loan online default at no extra cost to the borrower
4. A requirement prohibiting consumers from having more than one loan.

In 1999, I set out to regulate payday lenders; in 2007 they want to regulate the consumer. Most concerning, this creates a database where a particular consumer is further stigmatized as their personal information and habits are tracked, with no assurance of who has access to this information.

The fact is a personal cash loan from a licensed, Montana business not going to force anybody into bankruptcy. What is needed on both sides of this issue is good financial literacy and education for the consumer. We should be helping the two or three percent of consumers who have not used credit wisely.

In 1999, I worked with representatives of consumer groups, the Division of Banking within the Montana Department of Administration, and reputable members of the industry to provide strong oversight while allowing reputable lenders to operate in a regulated environment.

That cooperation is not found in HB 29. For example, HB 29 proposes a fee to a lender for a $100 no fax cash advance for two weeks of a $1.38, or 36 percent APR. Out of the $1.38, the lender would receive 38 cents and the state would receive $1 to maintain the proposed database.

Would you loan $100 to a stranger for 38 cents, then allow up to five months to repay the $100.38?

The proponents of HB 29 told the news media and the legislative committee that it was not an anti-business bill. Yet analysts for the legislature projected 50 percent of lenders would close the first year if this bill was passed. Passage would result in the loss of more than 500 jobs in the state and the closure of more than 100 businesses. This is the definition of anti-business to me.

Those who take out payday loans are hard-working, intelligent, responsible individuals who are capable of making their own financial decisions. They know their options and they choose the best, most economical solution for them and their family. Yet a small, well organized group of proponents pushing for further regulation on the payday loan industry in Montana are effectively telling tens of thousands of Montana citizens that they are not smart enough to make their own financial decisions.

The House Business and Labor Committee made an informed, sound decision on HB 29. And they did so in a bi-partisan vote with both Democrats and Republicans voting to table the bill.

This entry was posted on Friday, February 2nd, 2007 at 2:31 pm and is filed under Montana.