On February 23, 2010, the Women's Foundation of Montana along with senior, consumer, religious and economic development organizations filed language with the Montana Secretary of State for an initiative to limit the amount of annual interest on payday and title loans.
“Four hundred percent interest is too high, that is why AARP is joining this effort to protect Montanans,” said Bob Bartholomew State Director for AARP in Montana. “Montana’s seniors, low-income and working families deserve a cap on interest rates for payday and title loans.”
The proposed initiative seeks to address a problem area of consumer financing that has been the subject of several attempts at the Montana Legislature that have failed. The groups joining in the campaign are calling their effort, “400% Interest is Too High; Cap the Rate.”
“In this economy, anyone could need an emergency loan,” said Rebecca Mastee with Montana Catholic Conference. “Montana families struggling to make ends meet should not be charged over 400% interest. This is why the Montana Catholic Conference supports this initiative to cap the rate at 36%.”
Payday loans and car title loans have been under increasing scrutiny around the country and have been a concern for Montana groups for many years. These groups say these types of loans create a debt trap and cause an unsuspecting borrower to pay $800 for a short term loan of $300 with most of the profits going to firms owned by out-of-state companies.
“Over 70% of these predatory lenders are owned by out of state firms, said Tom Jacobson with Rural Dynamics. “In 2008, they made over $40 million in loans and collected over $9 million in interest and fees, draining millions of dollars from Montana’s local economy.”
According to 2008 filings with the Montana Department of Administration Division of Banking, 82 of the 116 payday loan establishments are owned by out of state firms. These national chains collected over $7 million of the over $9 million in interest and fees collected statewide in 2008.
“Predatory lenders were targeting military families, and the Department of Defense found that this was harming the combat readiness of our armed forces,” said Sheila Rice with NeighborWorks. “So, our military families are now protected by a cap that limits the interest rate to 36%. We believe that all Montana families deserve the same protection.”
Definition: Deferred deposit lending (sometimes called a cash advance or payday loan) is the practice of using a post-dated check or electronic checking account information as collateral for a small, short-term loan.
MCA 31-1-701 et seq. allows loans of up to $300 (not more than 25% of borrower's gross income), fees not to exceed 25% of the amount borrowed and repayment due within 31 days or less.
From 2005 to 2007, Montanans paid over $25 million in interest and fees to payday lenders.
From 2005 to 2007, Montanans borrowed over $141 million from payday lenders.
2007 Deferred Deposit Loan Activity
||181,896 loans totalling $47,271,444.00
|Interest and fees paid
|Borrowers w/ 13+ loans per year
|Average loan size
57% (102,986) or more of loans made in 2007 were to just 7,922 repeat borrowers.
In August of 2007, 76% of Montanans surveyed said they would support an interest rate cap on short term loans. (Harstad Strategic Research, August 2007).
In 2007, Congress passed the John Warner (R-VA) National Defense Authorization Act which capped the rates charged to military personel and their families for predatory loan products at 36%.
Without payday loans, where will people turn when faced with financial emergencies?
- Borrow from friends or family
- Use a credit union or finance company
- Put off unnecessary purchases
- Take a credit card cash advance
- Take an employee advance
- Negotiate with creditors
Credit Unions with Payday Loan Alternatives
The following 15 states plus the District of Columbia effectively cap payday loan interest rates: Arkansas, Connecticut, D.C., Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, and West Virginia.