Idaho’s Payday Lenders Could Face Interest Rate Cap

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There are 222 payday lenders in Idaho.

Idaho lawmakers are considering a bill to cap how much interest payday lenders can charge borrowers.

Many payday loan stores charge interest rates of up to 400 percent.  House Bill 470 would cap interest rates at 36 percent.  Bill co-sponsor Sen. Lee Heider (R-Twin Falls) told the Idaho Press-Tribune, “our society isn’t as well-off right now as it has been, so people are being taken advantage of.”

At least 16 other states have capped interest rates on short-term, high-risk loans, including one of Idaho’s neighbors to the east.  Voters in Montana approved a measure to cap payday loan interest rates at 36 percent back in 2010.  Within weeks of that law going into effect, dozens of lenders closed their doors.

Nobel Finance, a national consumer loan chain, was one of companies to shutter its Montana branches.  At Noble before the rate cap went into effect, a $100 loan would end up costing the borrower just over $170. That interest rate is more than 300 percent.

Casey Gifford was the company’s manager in Helena, Montana.  This is what she told me after her company announced it was closing:

“With the amount of loans that we make for the amount – you know, $100 loans, $200 loans, $300 loans – at 36 percent APR, we can’t make enough money to keep an office going and pay staff and re-loan money. It just – can’t do it.”

Chief of Idaho’s Consumer Finance Bureau told the Press-Tribune a similar scenario would likely play out if Sen. Heider’s proposal becomes law.

The bill would likely eliminate the payday lending industry in Idaho, said Michael Larsen, chief of the Consumer Finance Bureau within the Idaho Department of Finance.  If payday lenders go out of business in Idaho, consumers might turn to the internet to get fast cash from lenders that aren’t regulated by the state, Larsen said.

North Carolina-based Center for Responsible Lending has been advocating for interest rate caps all over the country. Vice President Uriah King says those payday lending jobs do more harm than good.

“For every person – for example – payday lenders employ, there’s almost 200 people in the debt trap. So in other words, you know, these jobs come at a real cost.”

The Idaho Department of Finance reports there are 222 payday loan stores in Idaho.  Do you think lawmakers should cap interest rates on payday loans?

Here’s an interesting look inside payday loan stores from NPR’s Planet Money.