The following editorial appeared on PennLive.com. It does not necessarily reflect the opinion of The Tribune-Democrat.
It’s the rare day that goes by in Harrisburg when state lawmakers don’t praise the virtues of Pennsylvania’s active-duty servicemen and women and its veterans.
Yet a nakedly exploitative bill now before the House Commerce Committee, if approved, would open a loophole in state law big enough to drive an Abrams tank through, trapping those same heroes in a crushing cycle of debt.
And some of the state’s largest veterans groups are mobilizing to defeat it.
We join them in opposition to legislation sponsored by Rep. Doyle Heffley, R-Carbon, that would erode the state’s very strong safeguards against predatory lending.
Right now, the typical loans that payday lenders offer at 200 percent to 300 percent annual interest are not legal here, thanks to Pennsylvania’s interest rate cap.
But under Heffley’s bill, these lenders would be allowed to pose as so-called “loan-brokers” and to seek licensure under Pennsylvania’s law intended to regulate credit-repair organizations.
The bill creates a new loophole by providing that the broker fees charged by these lenders would not be considered interest. Critics say this would allow these lenders to charge unlimited fees and to make triple-digit loans to the most vulnerable of consumers, including veterans
Active-duty soldiers are already protected from such practices under a federal law that caps interest rates at 36 percent annually.
Payday lenders have exploited similar loopholes in other states, posing as so-called “credit-service organizations” for the sole purpose of evading interest rate caps, said Kerry Smith, an attorney for Community Legal Services in Philadelphia.
The compounded interest “adds up to 500 percent to 600 percent” said Keith Beebe, a retired Army lieutenant colonel who heads up the Pennsylvania War Veterans Council, which represents some of the state’s largest veterans organizations, including the American Legion and Veterans of Foreign Wars.
Beebe’s group is one of more than 100 organizations that’s trying to defeat Heffley’s legislation, which is the latest iteration of a years-long push by payday lenders to expand into Pennsylvania.
As City & State Pa. reports, such industry players as the storefront lender Check N Go, and its parent company, AXCESS Financial, have been pressing lawmakers for years to weaken state regulations on their industry.
Heffley has publicly denied that his bill is a payday lending measure, telling City & State that it merely “(clarifies) the language so that current lending practices won’t be affected by different regulations.”
Heffley declined a request for an interview. But in a prepared statement to PennLive, the Slate Belt lawmaker said his legislation had been “wrongly labeled a ‘pay day lending bill.’ ”
The bill “protects consumers by requiring the fees, interest and payment schedule of loans be completely and accurately disclosed upfront – at the time when money is borrowed,” Heffley continued. “This legislation also requires credit service organizations to assess a buyer’s ability to repay the credit extension, further protecting consumers.”
House Commerce Committee Chairman Brian Elilis, R-Butler, whose panel currently has oversight of Heffley’s bill, called the proposal an important, short-term option for people looking to cover their bills.
He downplayed the punitive interest rates charged by these lenders.
But that’s like saying Pompeii was a mere hiccup.
According to a data sheet prepared by the Center for Responsible Lending the APR charged by these lenders, including Check N Go, can range from a merely crushing 533 percent to a truly awful 792 percent.
Those are rates that only a Mafia don would appreciate.
And Pennsylvania has rightfully shielded consumers from that kind of exploitation.
Both Heffley and Ellis insisted that the bill would be amended to include strict consumer protections, and that the end product would not look like the punitive payday loans of old.
We’ll see if he’s right. As it stands right now, Heffley’s bill takes a hammer to those who can afford it the least.
The Commerce Committee is scheduled to take up Heffley’s bill. If it doesn’t include the kind of ironclad protections promised by Ellis, committee members should hand it the defeat it deserves.