Washington State Payday Loan Law Takes Effect - Total Bankruptcy
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Washington State Payday Loan Law Takes Effect


A new law in the state of Washington is changing the way that payday lenders and borrowers operate.

The new law limits the size of payday loans, restricting payouts to 30 percent of an individual’s monthly income or $700, whichever is lower.

The law will also alter other aspects of payday lending, limiting the total number of loans a borrower can take out over a 12-month period, and restricting borrowers from taking out multiple loans from multiple sources. In addition, the law will set up a database to track loan and borrower practices.

Payday loans are characterized by the short length of the loan and high interest rates. These rates can go to as high as 400 percent interest when computed annually.

These loans are essentially an advance on the borrower’s paycheck, as the borrower writes a postdated check and pays a fee. The loan company agrees not to cash the check until the borrower’s payday.

The payday lending industry is unsure about how the new law will impact their business, according to the Associated Press. Owners of check-cashing stores, like Ken Weaver, expressed nervousness about the future of his two check-cashing stores. “We don't know if we're gonna be open in six months,” the owner of Apple Valley Check Cashing out of central Washington told the AP.

According to Weaver, the limit on the number of loans an individual is allowed to take out will likely have the most impact on business.

The law itself, however, was passed as a way to protect consumers from crippling debt. Consumer advocates have strongly lobbied for the law to help stop the cycle of debt that can result from payday loans. Often, consumer advocates argue, consumers find themselves high in debt, and the only way they can pay off one payday loan is with another. Because these loans may be included in a bankruptcy case, many feel forced to file.

The new law is an attempt to disrupt this cycle, and to ensure that payday loan companies can’t circumvent it. “We want to make sure the payday lenders can't circumvent the law,'” Danielle Friedman, the Predatory Lending Campaign Manager for the lobbying group Statewide Poverty Action Network, told the Associated Press.

In Washington state, the number of payday lending outlets has expanded rapidly between 2000 and 2008. There were 377 of these outlets at the beginning of the decade, and by 2008 there were over 700, representing about a 90 percent increase. The AP reports that lenders made about $1.3 billion on payday loans in 2008.

According to the AP, “Friedman's group estimates that the new law will save Washingtonians about $100 million in fees per year.”

While consumer advocates support the measure, lenders claim that the law will deny consumers the ability to get a loan in difficult financial times as other emergency means like credit cards tighten their requirements. They claim that there is demand for their services, and that if payday lenders are cut off, consumers will have to turn to short term financial solutions that are not subject to government regulations as they are.

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