At a time when corporate greed and corruption continue to dominate the political debate, Montanans will have the opportunity to decide whether the practice of predatory lending should be put to an end. In Montana, there is currently no regulation on payday and title lending percentage interest rate caps. Interest on payday loans, expressed as an annual percentage rate, or APR, averages more than 400 percent statewide
The AARP-backed initiative to end predatory lending in Montana was approved by the Montana Secretary of State to allow voters to decide the issue this fall. Initiative 164 would cap at 36 percent the annual fees and interest that payday, title and retail installment lenders may charge on loans. Backers collected about 2,000 more signatures and qualified in 20 more House districts than needed. Together with a coalition of consumer groups, AARP Montana launched the initiative to put an end to the practice of predatory lending which becomes a debt trap for many Montanans.
The initiative will address a problem area of consumer financing that has been the subject of several failed attempts at the Montana Legislature. The groups joining in the campaign are calling their effort, “400% Interest is Too High; Cap the Rate.” The coalition represents a wide cross section of Montanans including seniors, women, religious groups, economic development organizations and unions.
A payday loan is a small, short-term loan usually due on the borrowers next payday. Under current state law, payday lenders may charge fees as high as one-fourth of the loan, which amounts to an annual interest rate of 300 percent on a 31 day loan or 650 percent on a 14-day loan. The average annual rate for payday loans in Montana is 436 percent, and repeat borrowers often get mired in a cycle of debt.
In 2008, more than 154,955 payday loans were made in Montana, according to the Administration Division of Banking. The average annual percentage rate charged for payday loans in Montana is 436 percent and can be as high as 650 percent. These astronomical rates allowed payday lenders to collect more than $9 million dollars in fees from Montanans in 2008.
“Many older Montanans and low income workers are struggling to make ends meet. And the current recession has made things even worse. Living paycheck to paycheck or social security check to social security check is a reality in many households. Payday lenders have taken advantage of their struggle providing high interest loans that are repaid out of the workers' next paycheck or the retiree’s next social security check. Current laws in Montana even allow payday lenders to accept disability, child support or alimony payments as well,” said Bob Bartholomew, AARP Montana State Director.
If approved by voters this fall, Montana would join 17 other states that have already passed legislation regulating payday and title loans.
“Reasonable short-term loans can be helpful for a worker trying to deal with an emergency, but payday loans frequently become a debt trap in which the borrower sinks deeper in debt due to high interest rates or fees. In some cases, this drives families into poverty and bankruptcy. That's why AARP Montana is supporting the initiative to cap the rate at 36% and why I encourage voters to approve the measure this fall,” concluded Bartholomew.
Find more information about Cap the Rate.