Gov OKs payday lending regulations

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Story Published: May 15, 2009 at 4:33 PM PDT

By RACHEL LA CORTE Associated Press Writer

OLYMPIA, Wash. (AP) - The payday lending industry will face tighter regulations beginning next year under a bill signed into law Friday by Gov. Chris Gregoire.

The new law, which takes effect Jan. 1, limits the size of a payday loan to 30 percent of a person's monthly income, or $700, whichever is less. It also bars people from having multiple loans from different lenders, and sets up a database to track the number of loans taken out by people.

Gregoire called the measure a "reasonable compromise" and stressed that borrowers will still need to be responsible about the amount of debt they take on.

"We're putting reasonable limits on the industry and responsibility on the borrower," she said, but said the goal is to keep borrowers from getting "into a situation where they get into debtor's prison."

The measure enacts an installment plan for people who fall behind on their loan payments. Customers would have up to 90 days to pay back a loan of $400 or less, and 180 days for a loan of more than $400 without a fee. Currently, a borrower has 60 days and must pay fees.

The bill does not include an interest rate cap - an element consumer advocates have sought for years, but supporters say the new law is an important first step.

Danielle Friedman, with the Alliance to Prevent Predatory Lending, called it an "amazing victory for consumers" that paves the way for further protections.

"This will save a lot of people money that could go toward basic needs, she said.

Payday loans are small, very short-term loans with extremely high interest rates that are effectively advances on a borrower's next paycheck. They're typically obtained when a borrower goes to a check-cashing outlet or an online equivalent, pays a fee and writes a postdated check that the company agrees not to cash until the customer's payday. Finance charges typically amount to annual interest rates in the triple digits, around 400 percent, and can go as high as double that.

Throughout the session, the payday lending industry had argued that more regulation would force payday lending companies to reduce staff or even close stores.

Phone messages left with representatives of the payday lending industry were not immediately returned Friday.

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The payday lending bill is House Bill 1709.

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