With payday loans in decline, MoneyTree seeks OK for new high-interest loans

In 2009, Washington’s Legislature passed tough reforms on the state’s fast-growing payday lending industry. The law -- the first of its kind in the nation -- restricted the number of payday loans that each borrower was able to take out during one year to eight.

Supporters said the law was needed to put the brakes on predatory lending practices that were trapping poor people in as many as 50 high-interest payday loans at the same time.

Since then, the state’s payday lending industry has declined dramatically, going from making $1.4 billion in payday loans in 2007 to $327 million in 2012.

The rapid decline of the payday lending industry is certainly not lost on Dennis Bassford, founder and CEO of Seattle-based MoneyTree Inc., a major player in the state’s payday-lending industry.

Bassford has come back to the state Legislature this year seeking approval of a new type of short-term loan — one that’s not tied to paychecks and would carry limits for borrowers — that has skeptics worried about high interest rates and fees. Critics see the move as a step back, toward potentially abusive loans, but Bassford says a new loan product would allow MoneyTree to respond to demand from customers eager for an alternative to payday loans.

My article in this week’s print edition of the Puget Sound Business Journal (subscription required) focuses on Bassford’s political efforts.

Bassford also said the current state law rations credit and is driving business to unscrupulous payday lenders who have set up shop on the internet.

“I believe it’s driven consumers more and more to unlicensed online internet lenders who are operating from all over the world in an unregulated and potentially illegal fashion,” Bassford told me.

It’s unclear what has been the biggest factor behind the decline of payday borrowing in Washington. Certainly the reforms have played a big role.

The state Department of Financial Institutions acknowledges that out-of-state lenders are a large source of complaints. Of the 286 complaints the agency received about payday lending in 2011, 145 were about online lenders. In October, the agency fined a South Dakota-based operation $669,300 for making online loans with interest rates as high as 1,825 percent.

Deb Bortner, DFI’s director of consumer services, said unregulated online lenders will continue to be a problem, despite crackdowns.

“This is kind of like Whac-A-Mole,” she said. “You shut one down and another one pops up.”

    Greg Lamm covers banking & finance and law for the Puget Sound Business Journal.



Source: BizJournals / http://www.bizjournals.com/seattle/blog/2013/03/with-payday-lending-in-decline.html?page=all