Payday lending is considered a scourge by advocates for the poor and working class. They say the loans crush vulnerable families by trapping them in an endless cycle of debt at outrageous interest rates.
Payday loans are small-dollar, short-term loans due on the borrower's next payday. They aren't illegal in Pennsylvania, but you don't see payday lending stores here because a state law caps interest rates at a number that doesn't make the loans profitable.
Still, some state residents are getting the loans illegally online and others are crossing state lines to get loans in states where they are legal. They're possibly being exploited in the process.
Rep. Chris Ross says that means the current law isn't good enough and the new rules proposed in House Bill 2191 are needed to protect people.
This is typical Harrisburg.
Our leaders think the way to stop what seems to be a relatively small problem is to expose the greater public to the potential hardships of payday loans by permitting lenders to set up shop in poor cities like Allentown.
If out-of-state lenders are making illegal Internet loans, the better answer is better enforcement. There will be rogues to any law. You can't out-regulate them.
At a legislative hearing Thursday in Harrisburg, no one offered hard numbers on how many people have been snookered by oppressive online loans, or how many people are crossing state borders to get loans in states that allow them.
Consumer advocates testified they haven't received many complaints. In four years as the Watchdog, I can't recall hearing from one person burned by a payday loan. The state Department of Banking told me it hasn't been swamped with cries for help, either.
Members of the House Consumer Affairs Committee repeatedly stressed Thursday that people don't always have better options when they have to pay an unexpected bill. I think that's why they're supporting this legislation. I think it's more of a marketplace decision than a consumer protection one.
"What's the alternative?" Rep. Robert Godshall asked opponents of the bill. "There are times in everybody's life when they're up against it and they need to make payments."
"It's the consumers that are determining the need or the lack thereof," said Godshall, a Montgomery County Republican who is committee chairman.
John Rabenold, an executive with Axcess Financial in Cincinnati, testified there is a need and that's why Pennsylvania residents visit his company's payday loan stores in Ohio and Delaware.
"We service Pennsylvanians every day without complaint," said Rabenold, whose great-grandfather owned a hardware store in the Trexlertown area.
Supporters testified that people likely to use a payday loan might not qualify for traditional bank loans. They might not have credit cards, or might have maxed them out. Their options now are to skip payments, pawn possessions or bounce checks.
I agree that working-class families may not have many options for getting fast cash or paying emergency bills, but I don't see payday loans as the answer.
Religious, fair housing and community advocacy organizations oppose the bill. They say the best way to protect consumers is to keep the law as it is and keep payday loans out of the reach of most state residents.