A bill awaiting approval in the Idaho House of Representatives would reshape the states payday lending industry.
Idaho has remained relatively hands-off in its approach to regulating payday lending as other states have capped the maximum amounts and interest rates of payday loans, which are typically short-term and high-interest. That would change if the House passes Senate Bill 1314, which includes several measures to help prevent borrowers from falling into a cycle of paying off escalating fees and interest charges, said the bills sponsor, Sen. Lee Heider, R-Twin Falls.
This would help those in payday lending to get out of a cycle of payment, fee, payment, fee, Heider said. Fees get out of hand and make it a problem for people to pay back their loans.
Current Idaho law caps payday loans at $1,000. Heiders bill would allow borrowers to take out loans worth no more than 25 percent of their gross monthly income.
The bill also would mandate that payday lenders offer extended payment plans for borrowers needing more time to repay without adding fees or increasing interest rates. Often, fees come in the form of charges for bounced checks written by borrowers. The bill would cap the number of such charges at two bounced checks per loan.
In 2012, nearly 39,000 checks to payday lenders were returned because of insufficient funds, according to the Idaho Department of Finance, which drafted the bill.
Finance Director Gavin Gee said the bill would protect low-income borrowers from digging themselves into deeper financial holes. The provisions proposed in S 1314 are similar to provisions already in place in other states, Gee said. If adopted, S 1314 will change the face of payday lending in Idaho.
The bill passed 21-13. Several senators voting against it said they were uncomfortable with the state injecting itself into private business agreements.
Im concerned where government seeks to protect people from themselves, said Nampa Republican Todd Lakey.
Some senators noted that the bill doesnt limit the number of payday loans a borrower can take at one time.
John Tippets, R-Montpelier, said the bill could be a starting point for further regulation.
Will some people abuse this? Likely they will, Tippets said. But lenders think this is reasonable, a best practice. If we feel like we need to do more later and provide additional restrictions, we have that option. I think this is a good first step.
Zach Kyle: 377-6464,Twitter: @IDS_zachkyle