With a unanimous vote from the Caldwell City Council last month, a grass-roots group might have set in motion a state law to restrict or, possibly, to protect high-interest payday lending in Idaho.
The group, the Idaho Community Action Network, had been quietly shopping around the idea to local governments to stand up and recognize that they have a problem, said Terri Sterling, executive director of ICAN.
Caldwell was the first to pursue a new zoning law that places some big obstacles in front of payday lenders who want to open their doors in the city. Caldwell has 10 payday lending businesses that are grandfathered in. Any newcomers that want to open in its commercial districts will have to go before the City Council and ask for a special-use permit.
Ultimately, we do agree that a statewide solution is the best approach, Sterling said. But in light of the fact that its been two years and the state hasnt taken action, the group decided to take its fight to local governments.
Idaho is among the most permissive states in the U.S. for payday lending, a practice in which a person takes a short-term loan with an agreement to repay it with a typically steep finance charge.
The federal Consumer Finance Protection Bureau said in a 2013 report that the average loan in a group it studied was $392, with an average term of 18.3 days and fees equal to a 339 percent interest rate. Most people take out multiple loans per year and pay hundreds of dollars in fees, it said.
Payday loans are usually secured by a personal check from the borrower or a pre-authorized bank transfer. The average borrower makes about $26,000 a year, and about one in four relies on some kind of public assistance or retirement funds for income, the CFPB said.
Dennis Bassford, CEO of Seattle-based payday lender Moneytree, said his companys role is to give people access to short-term credit.
I have a lot of trust in people and their behavior and their ability to manage their own affairs, Bassford told the Idaho Statesman. I think people who use our services have made a rational decision that its the best alternative.
He opposes any restriction on his industry and argued that Caldwells zoning ordinance and a state law could result in consumers taking loans from unregulated online outfits.
Under the law in Idaho, lenders cannot lie in their advertisements. They cant take cars or property as collateral. They must disclose their fees, and they must give borrowers at least a full business day to change their minds.
They also cant renew a loan more than three times in a row at which point a consumer could owe almost twice as much as was borrowed. And they must be licensed by the Idaho Department of Finance if theyre not, consumers dont have to pay back the loan.
Other states limit payday loans to a few hundred dollars; Idahos limit is $1,000. Other states have fee caps; Idaho doesnt. Some states have outright bans on payday lenders; Idaho has more than 250 licensed ones.
With the state setting no meaningful limitations, (Idaho is) essentially the wild, wild West, said Uriah King, vice president of state policy for the Center for Responsible Lending.
But there is internal and external pressure to change that, he said. Idaho is more or less surrounded by states that have passed meaningful reform, national banks are now making mainstream short-term loans, and youve got pressure now from cities, he said.
Sterling thinks more cities will draft their own ordinances while the Legislature is in session.
That kind of bottom-up strategy historically has forced the hands of state lawmakers just not always in the direction advocates were hoping, King said.
Cities such as Cleveland, Atlanta and Los Angeles were among the first in their states to take shots at unscrupulous mortgage lending, he said.
In most of those states, that ultimately led to state action, he said.
Sometimes the action was to pass a strict bill preventing neer-do-well banks or businesses from preying on consumers, he said. But sometimes, they come in and pass something weak or minimal, and then they pre-empt the citys ability to do anything.
Cities around the country have so far passed hundreds of zoning restrictions on payday lenders, ranging from a cap on the number of stores to a limit on how close lenders can be to schools, King said.
Sen. Lee Heider, a Republican from Twin Falls, said he wants to protect people from bad-faith lenders. But at the same time, he said, businesses such as MoneyTree cannot operate on a low rate of interest for high-risk loans and those lenders could be the only source of quick cash for an Idahoan with bad credit.
Do we really want to run these folks out of town? he said.
Sterling understands his point. She used to take out payday loans until she figured out how to get her budget and finances under control, she said.
Absolutely, we think that people are still going to need money, she said. But if you dont have the money you need to pay back the money you just borrowed ... it doesnt help anybody.
Shortly after the Caldwell ordinance passed, Sterling sat down with Heider and Idaho Department of Finance Director Gavin Gee.
In the past, we havent really felt like we had their support on this, Sterling said. So I think its a new day, and I feel like we have a lot of support across the state.
Gee doesnt think there is a whole lot of appetite in the Legislature for a 36 percent cap on interest rates for payday loans something that has been proposed.
Sterling thinks a bill could mimic Colorados law one that requires a six-month repayment period and sets some limits on loans and fees.
Heider said hes not sure what form legislation in Idaho will take. At least a discussion is open, he said. At this point, Id say just wait and watch.
Audrey Dutton: 377-6448, Twitter: @IDS_Audrey