What could possibly go wrong?
"It's a very, very bad idea," Diane Standaert, legislative counsel at the Center for Responsible Lending, said of the industry-backed bill that passed the Republican-controlled House this month, largely along party lines.
Philadelphia Democratic state Reps. Bill Keller and John Sabatina broke ranks with their party and voted to support the bill. Why? Good question. Neither returned calls from the Daily News on Monday or Tuesday seeking comment on the vote. The bill is now in the Senate, but isn't expected to be voted on before summer recess.
"If there were a truth-in-politics law, they'd have to say, ‘We're about to pass a bill that will screw every poor person even more.' That would be the name of the bill," said Lance Haver, Philadelphia's director of consumer affairs. "If someone's drowning, you don't throw them an anchor to pull them down."
Payday lenders — they typically make two-week loans with steep fees equivalent to an annual percentage rate of more than 300 percent — are particularly controversial in Pennsylvania, where they came under heavy fire in 2005 and essentially were forced out of the state by federal regulators in 2006.
Republican state Rep. Chris Ross, of Chester County, who sponsored the House bill, hopes to bring them back. He said legalizing and regulating the industry provides a safe alternative for Pennsylvania residents who now borrow money from shady Internet companies that can resell their personal information.
"The nature of Internet lending scares the daylights out of me," Ross said. "How big it is I don't know, but the fact that it's very substantial here I don't doubt."
John Rabenold, a lobbyist for Ohio-based payday lender Axcess Financial, described the legislation as "an opportunity" for Pennsylvanians that would create jobs and generate cash for financial-literacy programs.
"We know there's a demand for short-term credit and we know there are people supplying it," he said. "We just think we can do it cheaper and with better service."
But consumer advocates say illegal online loans are a minor problem in Pennsylvania compared to the credit nightmares that storefront payday lenders cause in other states. In recent years, states have been cracking down on the short-term lenders, which often profit by keeping customers in debt much longer than two weeks, Standaert said.
"Their business model is to get people caught in a cycle of debt" said Kerry Smith, staff attorney at Community Legal Services of Philadelphia. "It shoves them further down the financial ladder." n
Contact William Bender at 215-854-5255 or firstname.lastname@example.org, or follow on Twitter @wbender99.