Montana Rejects 400% Interest Debt Traps

State vote mirrors similar actions in Arizona and Ohio


Center for Responsible Lending
November 3, 2010

Montana yesterday became the third state in two years to reject payday loans carrying triple-digit interest rates. Citizens in the state overwhelmingly approved a ballot initiative to limit annual interest rates on small consumer loans to 36 percent. With nearly all precincts counted, 72 percent of voters backed the measure, thus rejecting industry arguments intended to conceal that payday lenders’ profits depend on churning— trapping borrowers in a cycle of repeat loans that generate mounting fees and interest  charges. Nationally, the average payday borrower takes out nine loans each year, generally back to back, paying over $450 in fees for a loan of $325.  

The decision to curb payday abuse echoes similar, bipartisan votes in Ohio and Arizona in November, 2008. However, the Montana measure also applies to car title lending, curbing triple-digit rates in that arena as well.

Ohio citizens upheld a 28 percent interest rate cap, and Arizonans rejected a ballot measure initiated by the payday lending industry that would have made 400 percent interest payday lending legal indefinitely in the state.

“Payday lenders are pretty good at lobbying for their predatory product while calling it reform,” said Uriah King, vice president of state policy at the Center for Responsible Lending. “But they are 0-to-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 showed that an estimated three quarters of payday lending revenue is generated by borrowers who cannot meet the terms of the first loan without quickly taking out another. This cycle costs the typical borrower such a large chunk of his or her paycheck that it often puts them in deeper financial trouble than when they began Studies show that payday lending is associated with unpaid bills, credit card delinquency, bank overdrafts, closed bank accounts and bankruptcy.

In Montana, payday lenders made multiple attempts to keep the 36 percent rate cap off the ballot, losing two legal challenges when courts found no problems with the process.

Linda Reed, chief executive officer of the Montana Community Foundation said, “This victory for Montana working families and seniors has been eight years in the making. The predatory lending industry and their lobbyists blocked common sense protections at the legislature four times. So we decided to take it to a vote of the people. Today, the people of Montana overwhelmingly voiced their support for a cap to end 400 percent interest rates.”

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org; or Charlene Crowell at (919) 313-8523 or charlene.crowell@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.