BILL REQ. #:  H-3578.2 

Prefiled 12/22/2005. Read first time 01/09/2006.   Referred to Committee on Financial Institutions & Insurance.

     AN ACT Relating to establishing a minimum duration for small loans; amending RCW 31.45.073; and creating a new section.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that there is inadequate information to determine the fairness or reasonableness of fees and interest associated with small loans, also known as payday loans. Consumers should be able to access loans at reasonable rates; no one should have to pay usurious interest rates. While it is unclear if the current rates associated with payday lending are unfair or excessive, it is very clear that the rates are high. Under current law, a borrower using a payday loan often pays annual percentage rates that result in the loan being paid off multiple times on an annual basis. For example, a five hundred dollar loan for two weeks could result in a borrower paying an annual percentage rate of almost four hundred percent. Paying these types of interest rates can cause a borrower to need a loan to pay off their loan. By turning to payday loans again and again, the borrower can become trapped in a debt cycle. This cycle is most likely to impact people with low incomes who can least afford to pay high interest rates and have the fewest options in breaking the debt cycle. While every person must take responsibility for their actions and decisions, the legislature has a duty to help protect consumers, particularly the most vulnerable members of our society. To fulfill this duty, the legislature needs additional information.

Sec. 2   RCW 31.45.073 and 2003 c 86 s 8 are each amended to read as follows:
     (1) No licensee may engage in the business of making small loans without first obtaining a small loan endorsement to its license from the director in accordance with this chapter. An endorsement will be required for each location where a licensee engages in the business of making small loans, but a small loan endorsement may authorize a licensee to make small loans at a location different than the licensed locations where it cashes or sells checks. A licensee may have more than one endorsement.
     (2) A borrower must be allowed a minimum of thirty days to pay off a small loan. A licensee may not charge an additional fee or interest if the borrower pays off the loan within thirty days. The termination date of a small loan may not exceed the origination date of that same small loan by more than forty-five days, including weekends and holidays, unless the term of the loan is extended by agreement of both the borrower and the licensee and no additional fee or interest is charged. The maximum principal amount of any small loan, or the outstanding principal balances of all small loans made by a licensee to a single borrower at any one time, may not exceed seven hundred dollars.
     (3) A licensee that has obtained the required small loan endorsement may charge interest or fees for small loans not to exceed in the aggregate fifteen percent of the first five hundred dollars of principal. If the principal exceeds five hundred dollars, a licensee may charge interest or fees not to exceed in the aggregate ten percent of that portion of the principal in excess of five hundred dollars. If a licensee makes more than one loan to a single borrower, and the aggregated principal of all loans made to that borrower exceeds five hundred dollars at any one time, the licensee may charge interest or fees not to exceed in the aggregate ten percent on that portion of the aggregated principal of all loans at any one time that is in excess of five hundred dollars. The director may determine by rule which fees, if any, are not subject to the interest or fee limitations described in this section. It is a violation of this chapter for any licensee to knowingly loan to a single borrower at any one time, in a single loan or in the aggregate, more than the maximum principal amount described in this section.
     (4) In connection with making a small loan, a licensee may advance moneys on the security of a postdated check. The licensee may not accept any other property, title to property, or other evidence of ownership of property as collateral for a small loan. The licensee may accept only one postdated check per loan as security for the loan. A licensee may permit a borrower to redeem a postdated check with a payment of cash or the equivalent of cash. The licensee may disburse the proceeds of a small loan in cash, in the form of a check, or in the form of the electronic equivalent of cash or a check.
     (5) No person may at any time cash or advance any moneys on a postdated check or draft in excess of the amount of goods or services purchased without first obtaining a small loan endorsement to a check casher or check seller license.