Bipartisan Bill Would Cap ‘Payday’ Loan Interest Rates

DOVER – Delaware lawmakers took aim at the predatory “payday” loan industry Thursday, filing a bipartisan bill that would cap the annual interest rate a lender could charge.

Sponsored by Rep. Helene Keeley, House Bill 446 would cap the interest rate that could be charged for “alternative financial services” at an annual rate of interest of 100 percent. The bill also is being sponsored by House Speaker Pete Schwartzkopf, Rep. Mike Ramone, Sen. Harris B. McDowell and Sen. Ernie Lopez.

Payday loans are small-amount loans with a repayment period of less than 60 days. Up to now, there has been no limit to the number of payday loans an individual could take out in a given time. Many of the annual percentage rates commonly run in excess of 400 percent and can even reach more than 800 percent, as in one recent Delaware Court of Chancery case.

In that case, Vice Chancellor J. Travis Laster took the payday lending industry to task for its tactics. Rep. Keeley said the sponsors heard Chancellor Laster’s challenge in his decision and produced this bill.

“Payday loans are a stopgap fix for people’s financial problems. Unfortunately, we have seen time and time again that these lenders sometimes take advantage of people who are in a tough situation, saddling them with crushing debt that turns a small loan into a huge financial burden,” said Rep. Keeley, D-Wilmington South. “We took an important step forward in addressing repeated use of payday loans a few years ago, but some lenders have tried to circumvent that law. Capping the interest rate a lender can charge will provide stability, predictability and reasonableness to the payday lending system and protect the borrower.”

HB 446 also would prohibit lenders from using automated withdrawals on short-term loans for delinquency payments or accelerated default payments, and prohibit repeated attempts to make automated withdrawals for at least five days after a declined payment. This would prevent borrowers from being charged fees for overdrafts or declined withdrawals.

“Over the last several years, we have seen more and more people fall victim to predatory lenders and, as a policymaker, it’s one of the most disheartening things to see,” said Rep. Ramone, R-Pike Creek South. “This bill is not a cure-all, but we believe it will help implement additional safeguards for borrowers who may be in financial straits and find themselves potentially caught in a lending trap.”

The bill would not apply to more traditional financial products offered by banks, credit unions, and credit card companies, as they already are regulated by state and federal law. Delaware’s traditional banking industry would not be affected by the bill.

In 2012, the General Assembly passed bipartisan legislation sponsored by Rep. Keeley that limits borrowers to taking out five payday loans of $1,000 or less in any 12-month period, including loan rollovers or refinancing.

HB 446 has been assigned to the House Administration Committee.