Payday lenders finding ways around Washington's new law
A law that went into effect at the start of last year puts new limits on payday lenders. It created a registry of borrowers and restricts them from taking out more than eight of the high-interest loans in a year.
One chain is trying to get around the law with an innovative new product – and the state is crying foul. The product is called a "retail installment loan program," offered at Checkmate and Checkmate Express locations throughout Washington.
How does it work?
Instead of cash, the borrower gets a $100 gift card for places such as Fred Meyer, Walmart and Safeway. The idea is that since it's a "gift card" instead of cash, it's not really a payday loan.
But the state's not buying it. The Washington State Department of Financial Institutions has issued a temporary cease and desist order on the program.
Deborah Bortner with the consumer services division says the cards have the same features as payday loans. For example, payment is due on the borrower's next pay day.
"And the interest rate on it is 391% APR. So, it looks like a payday loan, it acts like a payday loan, we're alleging it is a payday loan. And they need to limit the number of loans that they make."
Bortner also says the lenders are marketing this product specifically to borrowers who've reached their eight-loan annual limit under the new law.
As an example of how aggressively this new product is being marketed, of 43 loans made at one branch, 90% were issued to borrowers who had maxed out on pay-day loans.
The cease and desist order requires California-based Checkmania, which does business here under the Checkmate brand, to stop the “retail installment loan program” immediately.
The company must reply within 20 days and can request a hearing to challenge the order.