Terri Sterling paints a very clear picture of who has been walking through the doors of Idaho's payday lenders.
"The people who take out these loans are desperate," Sterling, executive director of Idaho Community Action, told Boise Weekly. "They're seniors who are struggling to make it through the month and single moms who are on their own--people who cannot afford that kind of interest."
Sterling should know. Her organization has been on the front lines of advocating on behalf of Idahoans who have struggled with the nation's highest payday loan rates--582 percent (BW, Citydesk, "We're No. 1," April 21, 2014). Earlier this year, a study from the Pew Charitable Trusts chronicled how, even in the face of more lending competition, payday loan stores still didn't pull down their interest rates.
But as of July 1, new Idaho laws went on the books designed to relieve what Sterling says is a "vicious cycle."
Revisions to the Idaho Payday Loan Act, authored by Twin Falls Republican Sen. Tim Heider, bring what Heider said are "substantial changes" to how payday lenders will operate in Idaho.
"The legislation informs potential borrowers in advance of the risks associated with payday borrowing and helps them to understand their options, prior to the signing," said Heider at the announcement of the new law. "Our objective was to help those who may be trapped in the payday loan cycle to find a way out with no further costs, interest or fees."
At the top of the list of changes is the fact that a new loan can't exceed 25 percent of the borrower's gross monthly income or $1,000. Lenders are also limited to how many times they present a borrower's check for payment of the loan and are required to provide a payment plan once every 12 months for those having difficulties paying their loans. And no more small print: Disclosures are now required to be in 12-point bold and capitalized type.
Still, Sterling worries that the new law isn't enough. She told BW that if there isn't a hard restriction on how much interest can be charged--the law only caps the amount of the loan, not the interest rate--Idaho consumers are still vulnerable to falling into the payday loan trap.
"The reality of it is that we already have those same protections in place," said Sterling, referring to current law, which allows a borrower to request a revised payment plan. "Until we get a rate cap, we won't fix the problem."
To help stop the cycle, Sterling insists that Idaho adopt a 36 percent cap (per loan) for payday loans, similar to Colorado's state limit (20 percent for the first $300 and another 7.5 percent for amounts above $300).
Payday loan stores typically lure individuals who simply can't get a desperately-needed loan from a local bank. But Sterling told BW that one of the positive outcomes from the fight against predatory lending is that two traditional lenders--Key Bank and Les Bois Credit Union, neither of which are in the business of payday loans--now offer short-term agreements to borrowers at 15 percent interest, making it easier for consumers to avoid payday lending altogether.
"We don't need payday loan centers," said Sterling. "Banks are supposed to loan us money; that's where fair lending is going to happen."