Earlier this month, state Sen. John Yudichak kickstarted this year’s version of what has recently become an annual Pennsylvania General Assembly tradition. He sent a memo to the other members of the Senate, asking for their co-sponsorship of a bill that “ends payday lending” in the state.
It sounds like an odd goal, probably because if you live here in Philadelphia or anywhere in Pennsylvania, you’ve never seen a payday lending store. And that’s with good reason. Pennsylvania laws effectively ban them. These short-term, high-interest rate loans infamous for trapping low-income borrowers in a debt cycle are not possible because of state laws that cap annual interest rates between about 24 and 28 percent.
So what is Yudichak, a Democrat representing the 14th District in Northeast Pennsylvania, up to? Opponents of payday lending say they know. They’ve seen these memos and bills before. They say Yudichak, as other Democrats and Republicans have tried in the past, will actually be introducing payday loans.
“We’ve got a really effective law, but it’s always under attack,” says Kerry Smith, an attorney with Philadelphia’s Community Legal Services. “They’ve been trying to do this for decades.”
Payday lending stores in America are as common as McDonald’s and Starbucks. Really. Depending on the source, there are either more payday lenders in America than those two ubiquitous chains or nearly as many. Payday lenders loan money for people who need a quick infusion of cash, say $300 to pay off a bill, and get charged a fee of about $45. The fee turns into an annualized triple-digit interest rate if people can’t repay the loan quickly, and most borrowers can’t. The Consumer Financial Protection Bureau reports that 80 percent of all payday loans are either rolled over after two weeks or followed by another payday loan. Studies have shown the average borrowers remains indebted for five to seven months. The $45 becomes hundreds of dollars, and borrowers indebted by the payday loans might struggle to pay other expenses.
Yudichak says he’s crafting his bill to give low income Pennsylvanians an opportunity to get reasonable loans and build their credit scores and to prevent them from using internet payday loans. His memo mentions protections like a 36 percent APR cap, no rollovers, no balloon payments and mandatory underwriting.
“I know the opponents of payday lending have already started the opposition to the bill,” Yudichak says. “Our bill would explicitly end payday lending and short term loans right up front. We do not want to have consumers get trapped into a debt cycle.”
He’s calling this an attempt to create a Pennsylvania Financial Services Credit Ladder. In the past, bills have been titled Micro Loan Reform, including one that passed the House in 2012 before stalling in the Senate. Smith and a coalition of 50-plus interest groups that have little else in common have been fighting every one of these bills and believe Yudichak’s final bill will not be as good as it appears in the memo. And even if it is, the 36 percent interest rate cap would still be higher than Pennsylvania’s current cap.
In the past, Smith says, similar memos have circulated to pique interest among legislators, but the bills have always contained multiple fees that could lead to the notoriously high interest rates. The Pennsylvania Supreme Court came down with a ruling in 2010 that made it difficult for online payday lenders to legally do business in Pennsylvania, and Smith says she’s successfully defended clients who took out payday loans online.
But “Harrisburg is its own world,” Smith says. “They don’t come in and say we would like to legalize a 300 percent APR loan in Pennsylvania. They sort of mislead people.”
Philadelphia could be particularly vulnerable to payday lending, given its high poverty rate. In 2013, the City Controller’s office found the legalization of payday loans would negatively impact the city: “In a city already struggling with the highest poverty rate of any large U.S. city, with very high rates of unemployment in many outlying neighborhoods, and with numerous renters and homeowners already having a hard time making ends meet, it is hard to imagine that adding high‐interest short‐term credit to the financial services mix will make things better.”
Yudichak won his first election to the state senate in 2010. Before then, he had served in the House, starting in 1999. Yudichak is a Penn State graduate and has been working in the last year on a reform bill that would alter the makeup of Penn State’s Board of Trustees. The Board already voted on its own reforms last year.
He says a legal team is fine-tuning language of his payday lending bill and there’s no rush to introduce it, especially during budget talks. When bills about payday lending have come to vote in the past, intense lobbying ensued on both sides. John Rabenold, a nationally-known lobbyist, has spoken before the Pennsylvania Assembly as a major proponent for payday lending. Smith expects him to be back.
Her side has won each time before, but the challenge keeps resurfacing year after year year.
“All the people who represent low income people understand this would be devastating,” Smith says. “If you ever go to the capitol there’s always people doing some rally about this or that. There’s never anyone going, ‘what do we need?’ Triple-digit payday loans.’”