Montana Saying No to 400 Percent Payday Loan Interest Rate

Montana has become the third state to reject payday loans charging borrowers three digit interest rates. The state of Montana’s citizens have overwhelming sanctioned a ballot initiative to limit annual interest rates for small consumer loans to a maximum of 36%. In addition to the payday lenders, Montana has also targeted car title lenders charging excessive interest rates and fees.

Seventy-two percent of voters approved the measure. By approving the measure the citizens of the state are rejecting concealing payday lenders profits. More states are adopting this type of measure or similar measures in order to stop payday lenders from charging triple digit interest rates. In Montana, payday lenders have made multiple attempts to keep the 36% cap rate off the ballot. They have lost two legal challenges when courts found no problems with Montana’s process.

Nationally, the average payday borrower takes out nine loans per year. The payday loans are generally back to back with the borrower paying over $450 in fees and interest for a $325 loan.

Ohio and Arizona adopted a similar measure concerning payday lending interest rates in November of 2008. Ohio citizens upheld a 28% interest rate cap for payday lenders and Arizona’s citizens rejected a ballot measure that payday lenders put forth to allow a 400% interest rate indefinitely in the state of Arizona.

Uriah King, vice president of state policy at the Center for Responsible Lending (CRL) said “payday lenders are pretty good at lobbying for their predatory product while calling it reform, but they are 0-3 with the voting public –they can’t convince the broad voting public that their product makes sense.”

Last year a CRL study entitled “Phantom Demand” revealed that an estimated three quarters of payday lending revenue was generated by borrowers that cannot meet the terms of the first payday loan they accept so they take another payday loan. This type of “payday lending cycle” puts the borrower in deeper financial trouble because the payday lender terms are costing them such a large percentage of their paycheck, than when they began with the first payday loan.

Studies have shown that payday lending borrowers are associated with unpaid bills, credit card delinquency, bank overdrafts, closed bank accounts and bankruptcy. Total financial disaster occurs for payday lending borrowers.