Mills signs bill limiting predatory loan practices

(The Center Square) – Gov. Janet Mills has signed a bill that seeks to protect Mainers from predatory loan companies that charge high interest rates and use aggressive tactics.

The new law caps the annual percentage rate lenders can charge for certain types of small loans and credit cards at 15% and includes beefed up consumer protections for borrowers.

Supporters of the changes say it closes a loophole in Maine’s consumer code regulating payday and small loans that allows private lenders to charge excessive interest and fees despite a 30% APR cap.

Whitney Barkley-Denney, a senior policy counsel at the Center for Responsible Learning, said payday loans are “marketed as a quick fix, but in reality cause a long-term cycle of debt.”

“Payday lenders in Maine can charge rates up to 271% APR; make no assessment of whether the loan is affordable in light of a borrower’s income and expenses, and can seize money directly from a borrowers’ bank account,” she said in recent testimony. “This toxic combination of loan terms is the debt trap by design. The debt trap is the core of the business model.”

Frank D’Alessandro, with the group Maine Equal Justice, said predatory payday lending hurts the most vulnerable members of society.

“The vast majority of borrowers trapped by these loans are seniors, members of our armed forces, minority families, women who are heads of households, and other vulnerable working poor individuals and families living on the brink,” he said. “One of every four payday borrowers is a senior receiving Social Security.”

Not surprisingly, the measure was strongly opposed by bankers groups and lenders who say it will limit their ability to help people who need to borrow money to pay bills and make rent.

Kelly Keneborus, a lobbyist for the Maine Bankers Association, said setting an interest rate cap “that does not cover a loan product’s cost may result in Maine-based banks not being able to offer small-dollar loan products to customers.” She suggested the move could drive borrowers to unregulated lenders.

“If Maine banks and other licensed providers cannot provide these small-dollar loans, people will be forced to meet their needs through ‘informal’ loan sources,” she said.

But Sen. Richard Bennett, R-Oxford, the bill’s primary sponsor, disagreed and said the limits were needed to protect Mainers who have been “misinformed, bilked, conned, and abused by unscrupulous predator lenders, often when they are in dire personal circumstances.”

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