Pay Day Lending Legislation

House File 288 (HF 288) was introduced in the Iowa House at the end of last week. The bill caps all payday loan interest, penalties, fees, and other charges at 36% APR.

The bill is assigned to the Commerce Committee in the House. There is no bill in the Senate at this time.

Payday lenders tell legislators that payday loans are meant to be used for one time emergencies. In actuality they are a debt trap that can quickly leave the borrower paying more in fees than the amount of the original loan, while at the same time still not reducing their debt. In reality only about 1% of loans are made to one time borrowers. The average Iowa borrower takes out about 12 loans a year, significantly higher than the national average of 8.7 loans per borrower. More than 6% of Iowa borrowers take out a loan every 2 weeks.

The Iowa Independent ran a payday lending story last August. In that story a woman named Terry from Newton was paying off a $125 loan along with $19.44 in fees amounting to a 405.46% APR. While she started taking out payday loans on an occasional basis she now relies on them year-round, taking out 25 loans a year or almost one for each paycheck. Doing the calculations on that $125 loan for a year, Tammy would have paid $486 in fees and still owed the lender $125. That is not a helping hand out of a financial crisis, that is a debt trap. It is like giving an anchor to a drowning swimmer.

Last year Ohio passed a 28% APR cap on payday loans. The payday loan industry invested about $15 million on a ballot issue to reverse the legislation. The voters approved continuing the 28% cap legislation by over a 60% majority. Arizona's law allowing triple digit payday loan rates is set to expire in 2010. The payday loan industry invested almost $15 million in a ballot issue to prevent the expiration of triple digit payday loan rates. The voters overwhelmingly voted to let the triple digit payday loan rates expire.

Contact your Representative and members of the Commerce Committee in the House and ask your friends to do the same. Ask them to support HF 288. You can download a narrative, fact sheet and talking points on payday lending that might be helpful when communicating with your Legislator. Please email me with any information you hear from legislators.

Here are the members of the House Commerce Committee. They can be reached by email or by phone at 515-281-3221

Name (party, district, home county, email address)