HARRISBURG, Pa. – As part of the latest push to enact legislation in Pennsylvania to regulate payday lending, Pennsylvania Secretary of Banking Bill Schenck testified last week before the state Senate Banking and Insurance Committee on how the Pennsylvania Department of Banking could regulate the practice and safeguard consumers. Two measures are currently being considered affecting the payday lending industry in the state – one would regulate the practice, and the other would outlaw it entirely. Referring to state Committee Chairman Sen. Gibson Armstrong (R-13), Schenck said before his testimony that, "Pennsylvania's hard-working families must be protected from the abuses that occur in the payday lending industry. The time for action is now – we simply cannot allow payday lenders to continue to operate unchecked. The Department of Banking has done extensive research on payday lending and other states' responses to it. We've worked with stakeholders from all sides and, tomorrow, I look forward to a dialogue with Senator Armstrong and the committee about how Pennsylvania can implement the toughest statute in the country." Schenck testified the day after State Sen. Vince Fumo (D-1), the chief sponsor of a payday lending bill SB 101 introduced in November, held a news conference at which he distributed a letter from the U.S. Department of Defense expressing its opposition to payday lending because of the detrimental impact on military families. In his testimony, Schenck reaffirmed Gov. Edward Rendell's commitment to protecting Pennsylvania consumers. "I have heard from families who have used payday loans to fix their cars or buy prescription drugs for their kids. They say payday loans are lifesavers. But I have also heard horror stories from other families who got trapped in the cycle of indebtedness that characterizes this industry," he stated. Schenck outlined the provisions of House Bill 1478 which would regulate payday lending by, among other things, calling for clear disclosure of payday loan terms, limiting the amount of money that can be borrowed, and requiring payday lenders to offer extended repayment plans to consumers who need them. He emphasized though, that enforcement provisions must be restored before the Department of Banking will support the measure. "The General Assembly needs to make this bill stronger," he stated. One suggestion that came out of the hearing was to take deferments and repayment options for deployed members of the armed forces and National Guard and extend them to their families as well. Another suggestion was to reduce fees that can be charged on payday loans – the House bill sets the maximum fee at $17.50 per $100 borrowed. "Pennsylvania needs to get tough on payday lending. Sitting around and waiting for Washington to do something about it just isn't an option. Make no mistake, if a bill to ban this industry found its way through the legislature and on to the Governor's desk, he would sign it," the Secretary of Banking told the Committee. Representatives of the AFL-CIO, the American Association of Retired Persons (ASARP), the Pennsylvania Council of Churches, PennPIRG, Philadelphia Community Legal Services, the Center for Responsible Lending, and a victim of payday lenders also joined Fumo and other state senators at the event. In his letter to Fumo, U.S. Under Secretary of Defense David S.C. Chu said in part: "I am concerned the expansion of payday lending programs in Pennsylvania may lead to additional Service members finding themselves in spiraling debt.Pennsylvania represents the fourth largest Guard and Reserve population in the United States, and financial protection of Guard, Reserve and active duty Service members and their families is one of the key issues for the Department." Fumo's bill currently has 24 co-sponsors from both sides of the aisle. The measure amends the state Consumer Discount Company Act and which the Pennsylvania Credit Union Association says would close a loophole that payday lenders use to get around the current state prohibition against short-term loans carrying incredibly high interest rates. Specifically, the measure would prohibit payday loans except those made by a federally or state-chartered bank, thrift or credit union. Any person in violation of the prohibition would be charged with a misdemeanor and any payday loan made in violation would be void and the consumer entitled to recover actual damages plus a statutory penalty in the amount of three times the face amount of the payday loan plus attorney fees and costs. SB101 defines a payday loan as a "short-term cash advance of $3,000 or less that is secured or facilitated by a consumer's personal check that is held for future deposit or by electronic access to the consumer's bank account." By partnering with out-of-state banks, the PCUA said payday lenders use federal banking regulations to circumvent the state law. Fumo's bill would require that any lender receiving the majority of the proceeds of the loans be barred by engaging in payday lending – out-of-state banks typically receive only a small portion of the revenue of the payday loans. Schenck has been a staunch critic of payday lending and advocate of enacting regulations and legislation protecting consumers from the abusive practice. Earlier this year, Schenck's office released its report Losing the American Dream: A Report on Residential Mortgage Foreclosures and Abusive Lending Practices in Pennsylvania that confirmed a high foreclosure rate in Pennsylvania and found that "subprime" mortgages represent the majority of loans that result in foreclosure action. -

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