Alternatives to predatory loans already exist and more are emerging. The Montana Credit Unions for Community Development program, which extends small loans at far lower interest than payday or car title lenders, reports that loans through its program grew 25 percent over the last quarter.

The Montana Division of Banking and Financial Institutions issued a press release Thursday urging consumers seeking short-term and/or small loans on the Internet to be careful in reviewing the terms of the loan agreement.

“Montana voters were misled into believing that a 36 percent APR cap would lower the cost of short-term loans,” said QC president Darrin Andersen. “Today’s hard reality is that that cap is forcing cash-strapped Montana consumers to more clostly and credit-damaging options like bounced checks, late bill payment penalties and unregulated, offshore Internet lenders.”

QC said it has extended loans to more than 14,000 consumers in Montana.

Critics should be honest when pushing rate caps.  They are a ban on payday lending.  Consumers will NOT get 36% short-term loans.   

Several local short-term loan businesses in the Flathead are shutting their doors after voters passed an initiative capping the interest rates they can charge their customers.

Shelley Gould of Red D Cash in Evergreen said she will be closing after 10 years now that I-164 is in place, putting herself and another employee out of work.

“This is really, really a travesty,” Gould said. “(It’s) knocking on the door of free enterprise – shut down free enterprise if we don’t like what they’re doing.”

Well said.

It is perplexing why Montana voters chose to kneecap two lines of business, when it would obviously cost a lot of jobs at a time when the state’s economy is already struggling.

We have to wonder if voters really understood the ramifications of passing initiatives 161 and 164. Did they somehow miss the fact that a minimum of 32,000 Montanans are already unemployed?

People will always vote to make something cheaper.

Booting payday lenders doesn’t eliminate the need for quick cash, however. And caps like the one Montana just passed may make life much harder for people living on the margins.

Academic research on the subject supports these anecdotal findings. In Oregon, a 2007 law effectively capped rates at $10 per $100 and imposed a minimum borrowing term of one month (as opposed to the more typical one- or two-week loan for $15 per $100). At the end of  2006, six months before the cap kicked in, Oregon’s Consumer and Business Services Department reported 346 licensed payday lenders. Seven months after the cap, that number had fallen to 105. In September 2008 it was 82. In a December 2008 working paper, Dartmouth economist Jonathan Zinman concluded that former payday customers in Oregon ended up using less desirable alternatives such as overdrafts and utility shutdowns, and that “restricting access caused deterioration in the overall financial condition of the Oregon households.” In summary, “restricting access to expensive credit harms consumers.”

Montana voters overwhelmingly approved a ballot initiative Tuesday that limits interest rates on payday loans, bringing to 17 the number of states that have cracked down on the short-term, high-interest loans.

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Steven Schlein, spokesman for the Community Financial Services Association of America, a trade group, says the Montana bill will deprive thousands of state residents of an important source of short-term credit. “Unfortunately, their right to choose has been co-opted by voters who have never used nor understand a product that is consistently maligned in the press,” he says.