OLYMPIA - The Washington State Department of Financial Institutions issued an emergency rule yesterday, providing stronger protection for consumers taking small loans. The rule went into effect immediately upon filing, Tuesday, Dec. 22, 2009.
“This rule is a result of our learning a consumer had been charged a $1,950 participation fee for a $600 loan,” DFI Director of Consumer Services Deb Bortner explained. “That’s the equivalent of more than 4,000 percent interest – it’s simply unconscionable to charge such outrageous fees.”
This emergency rule was made effective immediately in an effort to protect consumers and prevent lenders from circumventing the will of the legislature. DFI does, however, intend to begin a notice and negotiated rulemaking within 120 days from the filing of this emergency rulemaking. DFI may also seek a statutory remedy to this situation.
This amendment (Amending WSR 09-24-090) will come in addition to the new laws regulating payday loans that become effective Jan. 1, 2010.
“It is our hope that this amendment to the rules regulating loans, in addition to the new laws, will close any unforeseen loopholes in Washington’s Consumer Loan Act and help DFI protect consumers from abusive lending practices while making sure access to these short-term loans continue for those who may not have borrowing alternatives,” Scott Jarvis, Director of DFI said. “It is important to note that this emergency action was prompted by the actions of a very limited number of lenders. The overwhelming majority of our lenders do their best to comply with our laws and the rules governing loan practices,” Jarvis noted.
The amendment includes three key additions:
- The annual fee allowed in RCW 31.04.115(3) may not exceed $50.
- The fee must be charged in advance and must be charged as a lump sum. It must not be charged monthly and must not be financed.
- Lenders will be allowed to charge a fee to terminate or close the line of credit account only if they have not charged an annual fee.
- The fee to terminate or close the account must not exceed $50.
The Washington State Legislature passed two new payday lending laws earlier this year – one of which will have significant impact on how consumers use payday loans.
Some of the biggest changes stem from ESHB 1709, Chapter 510 Laws of 2009 that will go into effect Jan. 1, 2010:
- Limits the total loan(s) amount to $700 or 30% of the borrower’s gross monthly income, whichever is less.
- Limits the number of loans a borrower can take to eight (8) in a 12-month period.
- Creates a single database for all payday loan companies to enter borrower data, thereby preventing lenders from making larger loans or more loans than is legally allowed.
- Replaces the previous payment plan with an installment plan for borrowers who can not pay back their loan as agreed. The installment plan is available at the borrower’s request at any time before their loan is due. The installment plan provides a longer payback time with no additional fees.
- New loans may not be made to borrowers in default or in an installment plan on existing loans.
The other law, SB 5164, Chapter 13 Laws of 2009, became effective July 26, 2009. In the past, when a payday loan company collected its own debts it was not subject to Washington’s collection agency practices act which has many protections for consumers. This law protects consumers from harassing or intimidating behavior when payday loan companies collect their own debts.
Before taking a payday loan DFI urges consumers to verify the licensing status of any payday lender they’re considering taking a loan from. (Go to www.dfi.wa.gov and click on “verify a license” to enter the payday lender information into the database query form.) All payday lenders offering services to Washington residents — including Internet payday lenders — are required by state law to be licensed by DFI before doing business in our state. Some online payday lenders offer services that are not legal in Washington State.