DOJ: News Release

McGrath Announces Legislation to Cap Payday, Title Loans

GREAT FALLS – Montana Attorney General Mike McGrath Thursday announced proposed legislation aimed at reducing excessive interest rates charged for payday and title loans.

McGrath made the announcement at a press conference Thursday at the Great Falls Civic Center. He was joined by Shannon Augare and Deb Kottel of Consumer Credit Counseling Services and Rep. John Parker of Great Falls. Parker is sponsoring the bill.

“While these lenders may portray themselves as a necessary source of emergency funding, their marketing reveals that they depend on people getting trapped in debt,” McGrath said. He quoted the script of a radio ad telling Great Falls-area customers that “every sixth loan” has a discounted interest rate. According to the Banking and Financial Institutions Division of the Montana Department of Administration, the typical payday loan in Montana is a 14-day loan of $300, at 650 percent APR.

“Some of these lenders are taking unfair advantage of the people who can least afford it,” McGrath said, “and during the Christmas season, Montana families are especially vulnerable.”

The proposed legislation – House Bill 29 – aims to make payday loans more reasonable. It will:

  • cap loans at 25 percent of a consumer’s net income or $300, whichever is less
  • cap the APR at 36 percent, the same cap Congress approved for military personnel
  • track loans to ensure that consumers have only one outstanding loan at a time
  • upon consumer request, establish mandatory repayment plan provisions for a loan in default, and
  • prohibit additional loans to consumers who are under repayment plans, preventing the debt trap.

Title lending provisions in the same bill will:

  • cap the APR at 36 percent and require that lenders disclose the APR to consumers
  • establish a minimum 30-day term for title loans
  • define title loans to exclude property that serves as a residence (mobile homes), and
  • prohibit fees not expressly allowed in the act.

“This is especially relevant in Great Falls, where some lenders target young, low-paid enlisted men and women and their families,” McGrath said.

Under federal legislation passed in October, annual interest rates on consumer loans to members of the military are capped at 36 percent. A report released by the U.S. Department of Defense in August found that 13 to 19 percent of military people took out high-interest, short-term loans last year.

McGrath said Montana needs to establish a regulatory structure that ensures lenders comply with the new federal law.

“And, we believe all Montana consumers should be given the types of protections the federal law gives to military families,” he said.

“Montana consumers need access to loans, but excessive interest rates can rapidly drive them into debt. Reasonable interest rates benefit both lenders and consumers.”

The 2007 legislative session begins Wednesday, January 3.

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