Delaware’s effort to reform payday loans

In an effort to curb the thousands of short-term loan defaults, state lawmakers have introduced a measure limiting the number of so-called “payday” loans a person could take out per year.

Typically, short-term consumer loans are small-amount loans with a repayment period of less than 60 days. Currently, there is no limit to the number of payday loans an individual can take out in a given time, which can add up. Consequently, Rep. Helene Keeley, the bill’s sponsor, says some people may fall behind on their small loans and default. 

“Payday loans are a stopgap fix to financial problems, not a long-term solution. People who take out multiple payday loans in a short period of time can find themselves in court after defaulting,” said Rep. Keeley, D-Wilmington South. “This bill will hopefully help break that cycle and put people back on the right path.”

Under House Bill 289, borrowers would be limited to five payday loans of $1,000 or less in any 12-month period, including loan rollovers or refinancing. HB 289 would also create a database to track the number of payday loans a person has obtained. 

“This legislation still gives people the freedom and flexibility to manage their own finances as they see fit, but it reduces the risk that they may be victimized by predatory lending practices,” said House Minority Whip Rep. Gerald Hocker, a co-prime sponsor in the House.

Last year, the state says payday lenders filed more than 2,400 cases in Justice of the Peace Courts for payday loan defaults. As of mid-March this year, there have been more than 550 cases filed for defaulted payday loans.

Thirteen other states prohibit payday loans, while another 21 states prohibit payday loan rollovers. Thirteen states have statewide databases to track payday loans.

HB 289 has been assigned to the House Economic Development, Banking, Insurance and Commerce Committee. Lawmakers say the bill has bipartisan support in both chambers.