Washington State
House of Representatives
Office of Program Research
BILL
ANALYSIS

Financial Institutions & Insurance Committee

HB 2360

Brief Description: Studying small loans.

Sponsors: Representatives Appleton, Moeller, Morrell, Lantz, Darneille, McIntire and Green.

Brief Summary of Bill
  • Requires the Director of the DFI (Director) to study payday loans and determine the amount of fees or interest necessary to enable payday lenders to cover their costs of doing business.
    • Requires the Director to report back to the Legislature by November 30, 2006.

Hearing Date: 1/31/06

Staff: Jon Hedegard (786-7127).

Background:

Payday lending practices are regulated by the Department of Financial Institutions (DFI) under the Check Cashers and Sellers Act (Act), Chapter 31.45 RCW. The phrase "payday loan" refers to a type of short-term, high interest, unsecured loan that is typically offered to consumers by a business outlet offering check cashing services. In a typical payday loan transaction, the consumer writes the lender a post dated check and, in return, the lender provides a lesser amount of cash to the consumer after subtracting interest and fees. Following this initial transaction, the lender holds the check for a specified period, during which the consumer has the option of either redeeming the check by paying the face amount to the lender or allowing the lender to cash the check after the loan period has expired.

The Act contains provisions for the licensing and regulation of businesses offering services related to check cashing and the selling of money orders, drafts, checks, and other commercial paper. The Act regulates payday lending practices and provides for regulation of licensees who are specifically authorized to issue small loans. No lender may lend more than $700 to a single borrower at any one time. The lender may charge up to 15 percent for the first $500. If the borrower has a loan in excess of $500, the lender can charge up to 10 percent on the amount over $500. For example, a lender could charge up to $30 for a $200 loan or up to $85 for a $600 loan.

Under the Act, licensees must maintain business books, accounts, and records. The books and accounts must be maintained for at least two years after a transaction. The DFI also has statutory authority to examine books, accounts, records, and files, or other information of licensees and persons that the agency has reason to believe is engaging in the business governed by Chapter 31.45 RCW.

Borrower and lenders may agree to a payment plan for payday loans. After four successive loans, and prior to default on the last loan, a borrower is entitled to convert his or her loans into a payment plan with the lender. Such payment plans are subject to the following conditions:

The Director of the Department of Financial Institutions (Director) may impose the sanctions against any:

Sanctions may include:

Summary of Bill:

The Director is required to study payday loans and determine the amount of fees or interest necessary to enable lenders to cover their costs of doing business. The Director must report to the Legislature by November 30, 2006. The Director may also examine other issues related to payday lending. The Director may make recommendations to the Legislature.

Appropriation: None.

Fiscal Note: Requested on January 26, 2006.

Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed.