Payday lender Moneytree is lobbying state lawmakers to rewrite Washington’s tough short-term lending rules.
Washington’s payday lenders have lost three-quarters of their business in the five years since a tough new state law restricting the high-cost loans marketed to poor families took effect.
Now the industry, led by Seattle-based Moneytree, is lobbying state lawmakers to revamp the law. Lenders are backing legislation to eliminate traditional two-week payday loans and replace them with “installment loans” that would stretch repayment out for up to a year.
The proposal, modeled after a Colorado law, has drawn bipartisan support and has passed committees in both chambers of the Legislature. Backers say it would be a win-win — reviving the lending business while giving consumers access to more affordable short-term credit.
But anti-poverty and consumer-advocacy groups are panning the legislation, arguing new fees would undermine the state’s 2009 reforms and ensnare more people in a debt trap. “You can’t say with a straight face this is good for consumers,” said Bruce Neas, an attorney for Columbia Legal Services.
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In its efforts to rewrite the law, Moneytree has sought to strengthen ties with Democrats, boosting donations to Democratic legislator campaigns in last fall’s elections, and quietly employing a well-connected Seattle public-affairs firm that includes the political fundraiser for Gov. Jay Inslee and other top Democrats.
The firm, Sound View Strategies, has ghostwritten an unpublished op-ed for lawmakers and has worked behind the scenes to cast the debate over the installment-loan legislation as a win-win reform to payday lending here.
Supporters of the bill say they’re trying to strike a balance between protecting low-income consumers from ripoffs and giving them a way to obtain needed short-term credit.
“I’m not a fan of payday loans,” said Sen. Marko Liias, D-Mukilteo, prime sponsor of the Senate version of the proposal. “But I think we’re now at a point where we’ve gone so far we are cutting off some people from accessing emergency funds.”
Washington’s current law limits payday loans to $700 per loan. Borrowers are charged a $95 fee, and the entire amount typically is due in two weeks. State law also limits borrowers to a maximum eight loans a year.
Under the installment-loan proposal, contained in House Bill 1922 and Senate Bill 5899, customers could borrow up to $1,000 for up to one year. A $700 loan under that system would cost borrowers $495 in interest and fees if held for six months. If the loan were paid over a full year, borrowers would pay $879 in interest and fees.
Unlike payday loans, which charge fees up front, the installment loans would accrue interest over time — giving borrowers an incentive to pay them off early, backers note. For example, a $700 loan paid back in two weeks would cost just $38 in fees.
Moneytree CEO Dennis Bassford says he’s frustrated by the opposition to the proposal, which mimics the Colorado law that has been praised by some of the same consumer advocates bashing the idea here. A similar installment-loan proposal was defeated by critics in the Washington Legislature two years ago.
Moneytree has branches in Colorado. Bassford says he didn’t support the Colorado law when it was imposed five years ago, but has come to see many borrowers prefer the stretched-out installment loans, compared with short-term payday loans where the entire balance comes due in a couple weeks.
“I learned in Colorado that our consumers like the affordability,” he said in an interview, adding the entire industry may shift to the installment model.
In Washington, meanwhile, Bassford says consumers hate the payday-loan system and its eight-loan limit. In testimony to a Senate committee recently, he blasted the limit as “paternalistic rationing” and said it is leading some consumers to seek out illegal online lenders.
There is no doubt Washington’s restrictive law has damaged the business of Moneytree and other payday lenders.
Total payday loans here have plummeted from more than $1.3 billion in 2009 to $331 million in 2013, the last year for which figures are available, according to the state Department of Financial Institutions. The number of payday-lending stores has shrunk from 494 to 174 over that period.
Critics of the industry say that’s proof of success. They no longer hear endless complaints from low-income consumers trapped in a vicious cycle — taking out one loan to pay off a previous one, and eventually racking up thousands of dollars in debt.
“Back then it was the ‘trail of tears’ is what I called it,” said Senate Minority Leader Sharon Nelson, D-Maury Island, a leading backer of the 2009 law. “Why would we as a state want to go ahead and create another debt trap?”
Last week, state Attorney General Bob Ferguson came out against the proposal in a letter to legislators, saying Washington’s payday-lending system includes important safeguards for consumers “and does not need to be overhauled.”
The installment-loan proposals in Washington also have been opposed by national consumer-advocacy groups, including The Pew Charitable Trusts.
Pew’s opposition here has irritated bill backers, who point out the group has praised the Colorado system as an improvement for that state — and even a model for national regulations.
But Pew’s Nick Bourke said that doesn’t mean Washington should rush to follow Colorado’s lead. The bills here would “lead to worse outcomes for consumers” compared with the current law, he wrote in an email, suggesting the state wait until the federal Consumer Financial Protection Bureau adopts national regulations as a guideline.
Critics of the installment-loan proposals note Washington’s system already includes an installment option as an “offramp” for borrowers who struggle with payday loans.
Borrowers can convert a $700 loan to a six-month installment plan with equal payments while still only paying the $95 loan fee. Under the proposals in Olympia, a six-month installment loan could cost up to $495 in fees and interest.
Supporters of the legislation note that only 12 percent of borrowers here use that existing installment option. Instead, many continue to repeatedly take out the short-term payday loans, with nearly one in five taking the maximum eight loans per year.
New focus on Dems
As part of the push toward an installment-loan system in Washington, Moneytree and allies have sought to improve their standing with Democrats.
In last fall’s elections, Moneytree executives and other industry donors upped their contributions to Democratic legislative candidates — giving nearly $48,000, almost three times the amount donated by the industry to Democrats in the previous four years, according to data from the National Institute on Money in State Politics.
Overall, the industry still favored Republicans, donating $58,000 to the campaigns of GOP legislative candidates last year.
Meanwhile, Moneytree also hired Sound View Strategies, the well-connected Democratic public-affairs firm, to work with its own lobbyists.
The company was retained for an $8,000-a-month “lobbyist’s fee,” according to a copy of the firm’s contract obtained by The Seattle Times. It also included a $15,000 “wrapping up fee” if the legislation was approved by March 5.
The contract was between Moneytree and two Sound View partners: Kelly Evans, a longtime Democratic campaign operative who managed former Gov. Chris Gregoire’s 2008 re-election campaign; and Tracy Newman, the campaign fundraiser for Inslee, Ferguson and others.
Their duties could include “all activities normally associated with state legislative lobbying” such as briefing the governor’s office and “advocacy to certain legislators, regulators and their staffs,” the contract says.
Newman and Evans didn’t respond to requests for interviews about their work. But another firm partner, Sandeep Kaushik, confirmed the contract was authentic.
The firm’s involvement has not swayed Inslee, whose office said Tuesday the governor opposes the bills as written. Citing Ferguson’s letter, Inslee spokesman David Postman said the state’s 2009 law is working as intended.
Kaushik helped write an op-ed favoring the legislation submitted to The Seattle Times that was signed by state Rep. Larry Springer, D-Kirkland, and Rep. Eric Pettigrew, D-Seattle. A copy of the op-ed, which has not been published, listed Kaushik as author in the file’s Microsoft Word metadata. He confirmed he wrote an initial draft, which was edited and signed by the lawmakers.
As of this week, Sound View had not registered as a lobbyist with the state Public Disclosure Commission (PDC). Kaushik said the firm has followed the law and has primarily acted as a behind-the-scenes adviser as opposed to directly lobbying lawmakers. He said the company likely will file with the PDC soon out of an abundance of caution.
PDC spokeswoman Lori Anderson said the contract itself did not require an immediate filing but that the firm should register if its lobbying activities exceeded four days of work.
Springer said he’s worked with the industry since the proposal first emerged two years ago. He said despite those who may be suspicious of lenders’ motives, their plan has merit and could be a better system for everyone.
Some critics raising a stink about the legislation appear to want nothing less than the elimination of the payday lenders, he suggested.
“The people who are advocating on behalf of the low-income population — I respect that advocacy a lot,” Springer said. “However there seems to be a lack of recognition or acceptance on their part that some lending system needs to be there.”
With both bills headed for possible floor votes soon, Springer said Tuesday he’s been working to address the concerns of critics and may introduce changes to the bill that would cut costs to borrowers by as much as half.