Payday lending changes in the pipeline for Delaware

HB 289, a bill that would make changes to how lenders in the state make short-term consumer or “payday” loans, passed in the Delaware House of Representatives this week. The bill was sponsored by state Rep. Helene M. Keeley (D-Wilmington South) and co-sponsored by several other representatives, including Rep. Gerald Hocker (R-38th).

The bill had the support of several non-profit agencies, including the United Way and the Delaware Association of Non-Profit Agencies (DANA) said Keeley. It is also supported by fair-lending advocates at the Delaware Community Reinvestment Action Council (DCRAC).

Keeley said that, for the past ten or 12 years, there have been a number of payday loan bills introduced in the state legislature that never got out of committee. She explained that many of them were aimed at capping interest rates – something the banking community had concerns about.

“I knew the possibility of the bill passing was not good if I had to go up against the banking community,” she said, adding that she wanted the bill to be reasonable enough to not “upset the banking industry that employs 30,000 people in the state.”

The current bill includes a database that Keeley said 13 other states already use, through which lenders would be able to see if people already have outstanding short-term or “payday” loans. It also states that consumers would only be able to take out five payday loans in a 12-month period and raises the maximum amount in the legal definition of short-term consumer loan from $500 to $1,000. An amendment authorizing a fee per transaction for data required to be submitted also passed. Customers will not be charged all or part of the fee.

Keeley explained the process behind the bill, adding that in nearby states including Maryland, New Jersey, Pennsylvania and New York, as well as Washington, D.C., payday loans are illegal.

“If Jane Doe goes to ABC Lending and then two hours later goes to XYZ Lending, [XYZ] would be able to see they already have a loan at ABC.”

According to the Center for Responsible Lending, half of payday borrowers end their cycle of repeat loans in default. Borrowers who are “approved” for a payday loan, as opposed to those who are denied a payday loan, are almost 90 percent more likely to file for bankruptcy. Also, payday borrowers are more likely to become delinquent on their credit cards than similarly-situated people who do not use payday loans.

Hocker expressed his main reason for co-sponsoring the bill is the database.

“You can still get five loans a year, and if you need more than that, you have bigger problems anyway,” he said. “I feel payday loans are good for some but terrible for others. I’m all for helping people, but for the people that go from one to the other to the other and there’s a 400 percent interest rate, that’s not the kind of help you need.”

Lynne Betts of the Society of St. Vincent dePaul in Seaford said she has had firsthand experience with people who got in over their heads with these types of loans. She said that, many times, people who have never had to ask for assistance of any kind come to her and need help to get out from under these loans.

“Maybe they have already borrowed from friends or family, and their back is against the wall. No one is disputing the need for short-term loans and, for many folks, there is no other choice and they do it against their better judgment, too. They get trapped in the high fees, interest rates and the inability to pay back.”

She said she sees the bill as “baby steps,” adding that she thinks it should go further but that she thinks, overall, it is a moral issue and “not a political one.”

“It has to do with the community that is already struggling.”

HB 289 passed the House 26-7 this week. For a full synopsis of the bill, visit Delaware.gov and click on “general assembly.” Bills can be looked up by their number.