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Monday, March 7, 2005 - Page updated at 09:22 a.m.

Payday lenders hire ex-regulators to lobby for them

Seattle Times consumer-affairs reporter

Payday-loan companies have stepped up their political profile in Olympia this session in an effort to beat back proposals that would more tightly regulate the fast-growing industry.

The industry has hired as lobbyists two former directors of the state agency that regulates payday loans. And in 2004, the state's Top 10 payday-loan companies boosted their political contributions almost eightfold to nearly $200,000.

The strategy appears to be paying off.

Nine legislative bills that would have reined in the industry's most aggressive and controversial practices — and which were opposed by the industry — have stalled in committee. Five more remain, but observers say they lack teeth.

The lobbying work is part of a nationwide move by the industry to boost its political power, and hiring top former regulators is typically a part of that strategy, said Jean Ann Fox, director of consumer protection with the Consumer Federation of America.

Payday loans are short-term loans that almost always carry triple-digit annualized interest rates. The dollar amount of these loans grew by 84 percent in Washington between 2000 and 2003, accounting for more than $1 billion in loans. Nationwide, the industry loaned out $40 billion in 2003.

How payday loans work:


In the typical payday-loan scenario, a borrower writes a postdated check to cover the loan amount plus a fee.

State law limits the loan amounts and fees to $15 per $100 up to $500, and $10 per $100 for the next $200 to a maximum amount of $700 per loan. For a borrower paid every two weeks, the annualized interest rate on a $500 loan works out to 390 percent.

But with that growth has come controversy. The industry says it's growing because there's demand for short-term loans to tide people over until the next paycheck, and that the businesses are upfront about the terms of the loans. Critics contend the high interest rates charged on the loans, which frequently reach 390 percent or more, affect people who can least afford to pay them. Those financially strapped consumers sometimes fall into a troublesome cycle of short-term borrowing, taking out one payday loan to pay another, compounding their debt woes.

According to a study by the state Department of Financial Institutions (DFI) — the state's regulatory arm that oversees payday loans — half of 190,000 payday loan customers took out the loans two to nine times a year in 2003, the most recent year for which figures are available.

In addition to increasing its political contributions, the industry also hired two heavyweight ex-regulators to lobby the Legislature:

• Mark Thomson, who for nine months served as DFI's interim director, then as its director of consumer services. Almost immediately after leaving DFI in June 2003, he went to work for Renton-based payday lender Moneytree, where he serves as compliance officer and director of government relations.

• John Bley, appointed as DFI's original director in 1993. Twelve months after he moved to the private sector in late 2002, Bley took on a payday-lending trade group, Washington, D.C.-based Community Financial Services Association (CFSA), as a client.

DFI's payday lending report


www.dfi.wa.gov/news/DFI_PaydayReport.pdf

Thomson's shift is particularly sensitive because he was a key player in pushing legislation two years ago that increased the legal payday-loan limit by $200 to $700.

Bley testified this year against bills that would have lowered interest rates, lowered maximum loan amounts, and established a database to let lenders and the state know how many payday loans borrowers already have outstanding when they seek another.

He testified that such proposals effectively would kill the industry by undercutting profits, that they would take choices away from consumers, and that the database notion was a dangerous Big Brother intrusion into personal finances.

Bley said his work for CFSA amounted to less than 10 percent of his earnings. He defended the ethics of his clients, saying he was "disturbed" by the implication that he was, in some fashion, selling out.

CFSA spokesman Steve Schlein noted it's common for former government employees to move to the private sector "to lobby the people they know, not the people they don't know ... that [expertise] is what they're marketing."


Rep. Shay Schual-Berke is an industry critic.

Thomson's role in pushing payday-loan legislation two years ago troubles both Rep. Shay Schual-Berke, D-Normandy Park, who in 2003 served as chairwoman of the House committee through which that legislation passed, and Helen Howell, who last month stepped down as DFI director. They said they had relied on Thomson when they backed that legislation, which apparently helped the industry expand.

"I think what we did two years ago was exactly what the industry wanted," Schual-Berke said. At the time, she says, she thought she was regulating the industry, but in retrospect, she says now, "I think we unleashed them on the community."

Howell takes a more measured view of the impact of the 2003 legislation, saying she thought it was a "mixed bag" that included some consumer protections. But she said she has "paused" when reflecting on whether Thomson was serving two masters.

For the past two weeks, Thomson has declined repeated requests for comment. Moneytree president Dennis Bassford dismissed as "pretty offensive and outrageous" any questions about Thomson's integrity.

Bassford called the bill that passed two years ago "a good bill" that included some consumer protections, including the borrower's right to cancel a loan the next business day. It also created a "payment plan" that allows borrowers, after they have taken out the fourth loan from the same lender, to work out a repayment plan over a period of at least 60 days.

In the 2004 election season, Moneytree was the largest contributor to political campaigns in the payday-loan industry; its political contributions to legislative candidates alone increased from $8,800 in 2000 to more than $36,000 last year.

That trend was true for other key players in the payday-loan industry. State Public Disclosure Commission records show that the Top 10 payday lenders last year gave nearly eight times as much money, or $196,930 to political campaigns as they did in 2000, when they contributed $24,700.

Collectively, Bassford, his family members and his employees contributed $122,205 to legislative and gubernatorial candidates, as well as political-action committees. That's up from $17,200 in 2000, records show.

The Bassford family members' largest contribution last year — $25,000 — went to ChangePAC, a group that paid for ads that primarily benefited Republican candidates, mainly gubernatorial candidate Dino Rossi and Rob McKenna, who won the attorney general's race.

Bassford said he has been active politically for years and called the increase in contributions a reflection of the fact that he's part of "a maturing industry."

Records also show that CFSA's spending on lobbyists went from zero in 2001 to $30,675 last year. Lawmakers have taken different views of the significance of the boost in the industry's contributions. Schual-Berke said "people can judge for themselves" whether the contributions had an influence on the political process.

Sen. Darlene Fairley, D-Lake Forest Park, chairwoman of the Financial Institutions, Housing & Consumer Protection Committee, who pushed for tougher legislation, said it was a "sad comment" that only bills supported by the industry were advancing.

But Sen. Don Benton, R-Vancouver, who sided with the industry's legislative positions, was dismissive of the notion that its money mattered. He said the payday lenders' political contributions were growing "proportionate to the business."

And Rep. Steve Kirby, D-Tacoma, who chairs the House committee through which only one bill advanced and four others did not, was skeptical about a correlation between contributions and political success.

"I don't know who they supported and who they didn't," he said. "Their contribution just mixes in with everybody else's."

Times staff researcher Gene Balk contributed to this story. Peter Lewis: 206-464-2217

Copyright © 2005 The Seattle Times Company


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