HARRISBURG, December 5, 2005 – At a news conference today in advance of Tuesday’s Senate committee hearing on payday lending legislation, opponents of payday lending spoke out in support of a bill to outlaw the practice in the state.

     State Senator Vince Fumo (D-Philadelphia,) the chief sponsor of the bill, distributed a letter from the United States Department of Defense expressing its opposition to payday lending because of the detrimental impact on military families.

     The bill, introduced in November, would close a loophole that payday lenders use to get around the current state prohibition against short-term loans carrying extraordinarily high interest rates. By partnering with out-of-state banks which typically receive only a small portion of the revenue from the loans, lenders use federal banking regulations to circumvent the state law. Fumo’s bill would require that any lender receiving the majority of the proceeds of the loans be barred from engaging in payday lending.

     A competing House bill (HB 1478) that is currently before the Senate would legalize payday lending in Pennsylvania. While doing so, it disregards numerous consumer protection measures that Fumo said would be crucial if the industry were permitted to operate here.

     Among those protections are a limit to the number of loans a customer is allowed to take out each year, a limit on the fee or interest charge that is commensurate with the risk, automatic partial repayment structuring, prohibiting mandatory arbitration clauses in loan agreements, and imposing effective penalties on lenders who repeatedly violate consumer safeguards.

     In his letter to Fumo, U.S. Under Secretary of Defense David S.C. Chu said in part: "I am concerned the expansion of payday lending programs in Pennsylvania may lead to additional Service members finding themselves in spiraling debt. . .Pennsylvania represents the fourth largest Guard and Reserve population within the United States, and financial protection of Guard, Reserve and active duty Service members and their families is one of the key issues for the Department."

     While the payday lending industry markets itself as a short-term solution for emergencies, the average customer in fact takes out 8.2 such loans per year. The fees paid on the loans typically exceed a 400 percent annual rate.

     "Our concern is that, instead of helping people pay their bills, this industry sentences them to an endless cycle of debt because they struggle over and over again to pay the exorbitant fees and interest rates," Fumo said.

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