|I plan to introduce legislation that will establish a Micro Loan program. The legislation is designed to put in place comprehensive consumer protections while ensuring equal access to more affordable, safe and flexible credit options for all Pennsylvanians. It ends the practice of payday lending forever by installing a micro-credit suite of products designed to assist borrowers in earning their way to longer term, cheaper loan products. The products mirror the process consumers experience in the credit market.
The responsible consumer lending provisions in the legislation which offer safe access to credit for Pennsylvanians Include:
- Reasonable Annual Percentage Interest Rates – The bill limits each loan to a simple annual interest rate of 28%. Each loan would have an application fee and a processing fee of no more than 5% of the loan amount respectively. Application fees would have further dollar caps based on the size of the loan. Both fees have been previously authorized by the General Assembly for other loan products or the concepts have been accepted by Federal regulators such as for federally-regulated credit products such as short term loans by credit unions or annual fees for credit cards.
- Eliminating the Endless Cycle of Debt – The legislation limits a consumer to no more than 8 consecutive successful two week loans. After that, the consumer would be offered an extended short-term loan from 61-120 days or be required to end participation in the short-term loan market for the same duration as the consumer’s active short-term loan period or 90 days, whichever is less. In addition, lenders are authorized to offer a Micro Loan program, which allows loans of up to one year in length.
- Strengthening Consumer Protections – The bill protects consumers through an absolute ban on rollover loans; a real time compliance verification system; required consumer credit counseling; no balloon payment for those loans which span multiple occurrences of income; and, indebtedness limited to $1,000 or 25% of gross monthly income.
- Protecting Our Military Families and Veterans – The legislation reinforces that federal military lending law has primacy in regard to members of the military and the Reserve or National Guard on active duty and their eligible family members; addresses the deficiency in other state laws by ensuring that our law applies to these individuals regardless of the law in their permanent home state of record; provides specific required disclosures to these same individuals that cover the relevant portions of federal military lending law; and, for the first time, establishes a required disclosure to any veteran to ensure that they are informed of alternatives available to them from other organizations as a result of their veteran status.
- Providing Equal Access to Affordable Credit Alternatives – This bill opens up a new level of access to safe, affordable and flexible credit options for a broad range of Pennsylvania families and small businesses via a variety of short term lending products and services including several distinct tiers of credit alternatives that fit a borrower’s needs.
- Bridging the Transition Gap – Many families find themselves, often through no fault of their own, in difficult and challenging economic times. These situations can seriously hurt an individual’s ability to rebuild their family’s economic security because of poor or damaged credit. This legislation allows these families to start small and transition over time to safer, cheaper and longer term products and resources through a tiered system designed to meet the borrower where they are in the process and build toward the future. By bridging this gap, our families will again be able to seek out larger opportunities such as home ownership or starting a business of their own.
I firmly believe these provisions provide a solid foundation for families in the lending market and will deliver true reform to Pennsylvania’s short-term loan market place while providing equal access to affordable, safe and flexible credit options for Pennsylvanians.