Street Corner Soap Box: Harrisburg Considers Legalized Loan Sharking

A payday loan. That's when you bring in a postdated check to a payday lending store, which includes a fee for the transaction, and you get a lump sum of money in return, and two weeks later the lender cashes your check. (For example, you bring in a check for $340, and receive a loan for $300.) Here's the problem. What if you can't pay up the loan after two weeks? You do it again, and pay off the original loan with the new loan.

According to paydayloans.org, that's how the payday lending system is designed to work. The site reports that 76 percent of lender profits throughout the United States comes from repeat loans.

Payday lending is legal in 35 states and loans out more than $20 billion yearly. There are twice as many payday-lending stores as there are Starbucks, and in 29 states there are more payday lending stores than there are McDonald's restaurants.

Thankfully, payday lending is illegal in Pennsylvania. Naturally, members of the Pennsylvania Assembly want to change that with a bill now circulating in Harrisburg.

The bill, if passed, would allow payday lenders to operate in the state, charging as much as 369 percent in annual rates to consumers for 2-week loans. Even the bill's "protections" are dubious. The bill claims to protect military members from exorbitant interest rates -- but federal law already protects its service members from payday lenders. The bill claims to forbid "rollover" loans -- preventing consumers from rolling over a single loan from week to week -- but allows consumers to take out multiple and separate loans. And the bill would even allow consumers to take payday loans out against unemployment and Social Security checks.

Why would anyone want this? Some advocates argue that it would create jobs and create wealth in the state. Others -- notably bill sponsor Representative Chris Ross, a Republican from Chester County, perhaps recognizing the ludicrousness of that argument -- are more obtuse, calling the payday-lending proposal a "consumer protection" bill. 

"The state Department of Banking is overmatched trying to stop the payday lenders who locate offshore, use the sovereignty of American Indian tribes or shifting post office business addresses to evade prosecution," wrote Ross in a Patriot-News op-ed. "House Bill 2191, which I am sponsoring, contains several crucial consumer protections that do not exist now and would require payday lenders to be licensed and heavily regulated."

"[S]ome proponents of the bill now argue that allowing payday lenders to charge upwards of 300 percent interest rates is a way to better regulate payday lenders who now break the law by marketing and selling payday loans to Pennsylvanians," wrote labor economist Mark Price on the blog Third and State. "Does this mean we can soon look forward to a bill to legalize bank robbery? After all, we have laws against robbing banks and people still rob them. So let's legalize bank robbery so as to better regulate it!"

I suspect the real reason for the bill's support in Harrisburg is pretty self-evident. The multi-billion-dollar payday-lending industry has an army of lobbyists in the state capitol. And those victimized by payday loans cannot afford even a single lobbyist.

Jay Stevens can be reached at Jay@eriereader.com