Montana may be the next state to force payday lenders out of their state. A broad cross-section of consumer advocacy groups are mobilizing on behalf of Initiative 164. I-164 is on the November ballot. It would cap interest rates on short-term loans at 36 percent.
The goal is to create a usury law that harms payday lending. While it would not make the practice illegal, a cap at that rate would likely cause payday lenders to close their shops in the state.
The Montana Consumer Finance Association and Bernard Harrington, treasurer for the Coalition for Consumer Choice Against I-164 petitioned the Montana Supreme Court to invalidate the ballot initiative. On August 18th, The Supreme Court voted 4-2 to turn down the request that would have either taken I-164 off the ballot, or rewritten the terms of its language.
Right now, payday lenders can charge $15 for a two-week loan of $100. In such an instance, a borrower writes a post-dated check for $115 and then is given a loan of $100. Underwriting is minimal. Lenders want to see that a borrower has a paycheck coming that will pay at least that much.
The new law would cap fees at $1.38 for $100.
The law would make credit far more affordable for borrowers. Such a loan would add a lot of flexibility to
the needs of consumers. Demand would be far greater, as well. Of course, that isn't going to be tested, because payday lenders are unlikely to make their loans at that price.
The lobbyists for the lenders are making two arguments: one, that consumers need these loans to help them through a tough spot, and secondly, that the law would eliminate jobs.
According to the Helena Independent-Record, the ballot initiative is being pursued by these groups:
- AARP Montana
- Montana Catholic Council
- Montana Community Foundation
- Montana Women Vote
- NeighborWorks Montana
- Rural Dynamics
- SEIU Healthcare Local 775
Former State Representative Sheila Rice, who know works as executive director for NeighborWorks Montana, is among the advocates involved in the effort.
The Montana Organizing Project says that the public is behind the initiative, and that recent polls show that 70 percent of voters are likely to support I-164. Still, there is evidence to suggest that it is an uphill battle. In 2009, rate-cap bills in the Montana Senate and House both failed to gain passage. Neither made it to the floor for a vote.
Payday lending is on the ropes. In July, Arizona became the 17th state to put curbs on payday lending, according to CNN. Arizona allowed its payday rules to sunset. Advance America is closing its stores in the state.