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Loansharks are Circling in Harrisburg

Homeownership and Consumer

Loansharks are Circling in Harrisburg

Bill to Legalize High-Cost Payday Loans in Pennsylvania Headed to Vote Next Week

A bill has been filed in the Pennsylvania legislature that would legalize high-cost payday loans in Pennsylvania. State Rep. Brian Ellis, the House Commerce Committee Chairman, announced at a Committee meeting today that the bill will be considered for a vote next week, on June 13.

Pennsylvania has one of the strongest laws in the country to guard against predatory lending, with a cap on fees and interest that has kept high-cost payday lenders at bay.  Pennsylvania’s law saves residents more than $272 million each year in fees that would otherwise be drained from our economy if payday lenders were allowed to operate here.

HB 2429, “An act regulating credit services,” would jeopardize those savings by opening the door to predatory payday lenders in Pennsylvania. If passed, the bill would allow payday lenders to evade the state’s strong interest rate cap by posing as loan brokers in order to charge unlimited fees and make triple-digit interest rate loans.

Under the scheme allowed by HB 2429, known as the “CSO scheme,” payday lenders pose as brokers under state credit repair or credit services laws. HB 2429 explicitly would create a loophole in Pennsylvania’s lending laws by providing that the broker fee is not considered interest. Payday lenders exploit similar loopholes in several other states and become credit services organizations (CSOs) for the sole purpose of evading interest rate caps that would otherwise prevent debt trap loans.

“Payday loans are extremely high-cost loans marketed as a quick-fix to a financial short-fall, but designed to trap cash-strapped borrowers into a long-term cycle of debt,” said Kerry Smith, an attorney at Community Legal Services.  “Payday loans have been so harmful to our nation’s soldiers that Congress and President Bush effectively banned them from being made to active duty military members and their dependents, a law similar to what we have in place for all residents of Pennsylvania.”

For the past several legislative sessions, the payday lending industry has pushed bills to legalize their high-cost loans in Pennsylvania.  A diverse coalition of groups from across the state—including military veterans, faith leaders, and credit counseling agencies—have been working to keep our existing protections in place.  More information about payday lending and the legislation is available at

The latest version of the payday lenders’ proposal, HB 2429, is opposed by groups including the Pennsylvania War Veteran Council, which represents all the major veterans’ organizations in Pennsylvania; the AARP; the Housing Alliance; the Pennsylvania AFL-CIO; Lutheran Advocacy Ministry in Pennsylvania; Community Legal Services; Clarifi; and many more.

Keith Beebe, Vice President and Chairman of the Legislative Committee of the Pennsylvania War Veterans Council, said, “The Pennsylvania War Veterans Council is opposed to any legislation that would increase the interest rates and fees on small-dollar loans and authorize predatory payday lending. Our position is informed by a comprehensive study of predatory lending conducted by the United States Department of Defense (DoD) and our experience working with vulnerable veterans in Pennsylvania.  The DoD has concluded that it is important to cap both fees and interests on consumer loans. The credit services organizations (CSO) scheme enabled by HB 2429 would allow lenders to easily evade Pennsylvania’s cap by authorizing a broker’s fee to be exempted from the interest rate calculation.  Legalizing long-term, predatory payday loans will undermine our work and cause veterans financial distress. As such, we oppose any legislation that would authorize these high-cost loans, including HB 2429.”

Patricia Hasson, President of the credit counseling agency Clarfi said, “If HB 2429 were to become law, the debt trap design of the payday loan product would become codified into state law, increasing the prevalence of the harms. This would open the floodgates to predatory lenders, putting the financial well-being of Pennsylvania’s low and moderate income families, our clients, at risk.  Our clients are the very same people who would be targets of the predatory loans authorized by HB 2429.”

Tracey DePasquale, Director of Lutheran Advocacy Ministry in Pa. said, “Payday lending is modern-day usury. These loans exploit people facing financial emergency, enriching the lender while failing to offer a sustainable solution to the person in need. All major religious traditions share a deep opposition to usury.  This year, as in several years past, payday lenders are pushing a new scheme that would let them get around our consumer protections. This time it’s the ‘CSO’ scheme, which would legalize loans with effective annual interest rates (APR) over 300%. Schemes like these are wolves in sheep’s clothing.  We ask that Pennsylvania legislators remain steadfast in upholding, not weakening, our current laws in order to keep our communities free from predatory lending practices.”
In a letter sent to the House Commerce Committee, Richard W. Bloomingdale, President of the Pennsylvania AFL-CIO said, “Each time these out-of-state payday lenders have advocated for new legislation, it masquerades as ‘consumer protection.’ They have tried to disguise their proposals by rebranding payday loans as ‘short-term loans,’ ‘micro-loans,’ or ‘a fresh start.’ This year, with HB 2429, they are trying to weaken our law through a scheme that would allow payday lenders to pose as loan brokers, rather than lenders, so they can charge unlimited fees and make 300% annual percentage rate (APR) loans to hard working Pennsylvanians.   For workers who fall victim to debt trap loans, the result is the same whether the payday lender is making the loan directly or acting as broker. The sky-high interest and fees, coupled with the fact the lender is in the worker’s bank account on payday, cause workers to become ensnared in long-term, high-cost debt.”

Tam St. Claire, President Emeritae of the Bucks County Women’s Advocacy Coalition said, “Payday loans to desperate individuals, more often than not, lead to a downward spiral of overwhelming debt. This is exactly what the predatory payday loan industry wants with their high (often 300% or more) interest rates on small loans. The payday lending industry has a business model that depends on its consumers getting deeper and deeper into debt from one loan that happens to have exorbitant interest and high fees.  Living in debt is a clear impediment to achieving economic security.  Surely, our legislators do not want their constituents to get caught in a cycle of unaffordable payments and then greater delinquency on other bills, not to mention awful mental stress.  We urge them to do the right thing and oppose HB 2429 which would allow payday lenders to make dangerous high-cost loans outside of the protections in Pennsylvania law.”