The Washington Subprime Marketplace: Title and Payday Loans in Washington
Washington State, not be confused with D.C., is known for its lush green landscapes, the infamous Starbucks headquarters, and 90s-era grunge. And while Washington may be best known for being home to Seattle, a glistening metropolitan area that many call the next Silicon Valley, there’s more to the state than these bright city lights. Look to the family farms of Eastern Washington or the wine country along the Oregon border. The Evergreen State is rife with treasures that you’ll never hear about in WIRED Magazine.
Washington state has a poverty rate of 12.7% – one of the lowest in the nation – so you might assume that all Washingtonians are doing well in such a booming economy. However, most Americans are living just one financial emergency away from a serious money crisis, without enough savings to cover a $1,000 medical bill or a $500 car repair.
And Washingtonians are no exception. When facing a financial emergency, people living in Washington who are struggling financially might turn to what looks like an easy fix: a payday or title loan. But those are dangerous options that could leave you in even worse shape – here’s why.
Payday Loans in Washington
A payday loan is a short-term loan, usually for around $500, that often comes with a triple-digit interest rate, requires automatic withdrawals from your account, and often catches borrowers in a vicious cycle of owing much more money than they can afford to pay back.
Washington State is on the forefront of protecting its citizens from falling into a payday loan debt trap, after successfully passing legislation (Wash. Rev. Code Ann. 31.45.010 et seq) in January 2010 that limits the number of payday loans that consumers can take out in one year, capping it at eight loans per year.
Between 2009 and 2011, Washington saw a 42% reduction in the number of payday lenders operating in the state, and the number of payday loans taken out dropped from 3.2 million in 2009 to just 856,000 in 2011.
In 2015, the number fell even lower. That year, just 776,824 loans were taken out from one of the 139 licensed payday lenders still operating within the state of Washington.
Currently, there is one payday lender for about every 53,000 people in Washington. This might seem high until you realize that the number of Starbucks stores eclipses this figure. Right now, there is one Starbucks store for every 9,000 people in the state.
Washington caps payday loans at $700, or 30% of a person’s income, whichever is less.
Under these guidelines, a 14-day loan of $100 would have an APR of 390%.
Number of Payday Lenders: 139
Maximum APR: 391%
Number of Payday Lenders: 27
Maximum APR: 36%
The History of Payday Loans in Washington
Changes to the payday lending industry in Washington can serve as an example to the rest of the country as to how increasing regulations can help protect consumers from risky financial choices. However, while Washington legislators have indeed cracked down on predatory lending in recent years, there are still lenders out there looking to make a quick buck off people who can barely make ends meet.
In 2015, an effort backed by a major payday lender tried to loosen the restraints against payday lenders placed by the Washington Department of Financial Institutions. Fortunately for consumers, the measure lacked support from legislators, advocacy groups, and citizens of the state.
The Consumer Financial Protection Bureau (CFPB), the federal agency tasked with protecting consumers from financial exploitation, rolled out proposed federal-level regulations for payday lending in 2016. Proposed rules included lenders needing reasonable evidence that the borrower has the ability to repay the loan, restricting the number of rollovers or renewals on payday loans, and requiring lenders to notify borrowers when they withdraw funds from the borrower’s bank account.
The Dodd-Frank Act legislation enacted in 2010 does not specifically define payday loans, and the rules outlined by the Dodd-Frank Act and the CFPB recognized that State, Local and Tribal authorities may overlap or add on to the federal-level rules and regulations set forth by the act and the bureau.
The CFPB finalized regulation in late 2017 that would require lenders to evaluate whether or not a person can afford to repay their loan, but implementation and enforcement of that regulation is stalled due to uncertainty regarding the role of the CFPB moving forward.
Washington Payday Lending Rules and Regulations
Washington state legislators and advocacy organizations are trying to protect consumers who need financial assistance, but it’s still up to individuals to do their own research before borrowing, to ensure they don’t end up in over their heads.
Before you take out a loan, do these two things:
- Check with Washington’s Department of Financial Institutions to see if the lender is registered and licensed.
- Ask yourself whether you can really afford to pay back the loan in full before your term is up.
- Maximum Loan Amount:$700 or 30% of gross monthly income, whichever is less
- Maximum Loan Term:45 days
- Rollovers Permitted?:No. Borrowers cannot refinance/renew/extend nor can they pay off one loan using funds from another
- Maximum Finance Rate and Fees:15% on the first $500, an additional 10% for the amount between $500 and $700
- Finance Charge on a 14-Day $100 Loan:$15
- APR on a 14-Day $100 Loan:390%
- Maximum Number of Outstanding Loans at a Time:Maximum 8 payday loans per 12 months
- Repayment Plan:Yes, repayment plans are offered on 90-day terms for loans up to $400, and 180 days for larger debts, and the lender cannot charge additional fees
- Collection Fees:$25 NSF fee (one time per instrument); collection costs (excluding attorney's fees, interest and damages); criminal action is prohibited. A lender attempting to collect an unpaid loan may not contact you more than three times per week, and cannot call between the hours of 9:00 p.m. and 7:30 a.m.
Title Loans in Washington
An auto (or car) title loan takes place when a borrower uses their vehicle as collateral for a short-term loan, usually repaid in around 30 days. In most cases, you can keep your vehicle for the duration of the loan, but you must own the vehicle outright, and lenders may require installation of a GPS tracking device to ensure you do not try and hide the car in case of repossession. Title loans are different than pawning your vehicle, since most pawn shops require the car and title to remain in their possession until the loan is repaid. Title loans are considered a “secured loan” because you are putting up your property as collateral, and as such, the lender has the right to repossess the property if you are unable to pay.
In Washington State, title loans are not explicitly mentioned in any legislation or restrictions. There are a few online lenders claiming to offer title loans, but this should be a major red flag to borrowers. Any secured loan should require you to verify your collateral in person. Otherwise, anyone could pretend to have a Mercedes to put down, even if they’re really riding around town on a child’s bicycle.
At the national level, the CFPB, the Federal Trade Commission, and a variety of consumer protection groups have all advised against allowing either payday loans or title loans to go unregulated, as they are both costly loan products that often leave consumers in a far worse financial situation than before they borrowed.
Title loans in Washington are governed by the same CFPB regulations mentioned earlier, so lenders cannot make automatic withdrawals from consumers’ accounts and must verify whether or not someone can afford to pay back their loan before they borrow.
If you are unsure if a lender is licensed to operate in Washington State, you can contact the Washington State Department of Financial Institutions, which has a handy online verification tool. Because title loan laws aren’t explicitly described by name, you should always check with the regulating agency to ensure you don’t fall victim to a scam.
Regulating Payday and Title Loans in Washington
When you’re facing financial uncertainty, the pressure is on to find a quick fix. Unfortunately, there are many people out there who make their living taking advantage of consumers at their most vulnerable moments. In order to protect yourself from being exploited, you need to make sure you’re aware of the signs of predatory lending.
In the last two years, there have been three instances of Washington State residents falling victim to fraudulent payday or title loan lenders who were not licensed to operate within the state, including two groups representing themselves as Native American tribal lenders (Lac du Flambeau Indian Community and Tunica-Biloxi Tribe of Louisiana d/b/a Mobiloans) and an unlicensed purveyor of title loans operating under several different business names. All three cases involved settlements and fines, and luckily most borrowers had their money returned and credit report issues cleared.
If you find yourself in a situation where a payday loan starts to look like a good idea, first try to evaluate all other options. Can you ask a friend or family member to lend you money? Can you ask your employer for an advance? Or try and get on a payment plan for non-interest bills like utilities? If you crunch the numbers and still think you need to take out a loan, check to make sure the lender is licensed to operate in Washington, thoroughly study the loan terms, and most importantly: make a budget to ensure you can repay the loan within the set term. You are your own best advocate, and while it can be hard to be honest with yourself when it comes to money and budgeting, you have more power, knowledge, and tools than you may realize.
How to Report a Predatory Lender in Washington
If you suspect a lender of having predatory practices, or if you feel you are a victim of predatory lending, you can file a complaint with the Washington State Department of Financial Institutions.
Washington State Department of Financial Institutions
- Online Complaint Form: https://dfi.wa.gov/file-complaint
- Phone: (360) 902-8703 or 1-877-RING DFI (1-877-746-4334)
- Email: CSEnforceComplaints@dfi.wa.gov
Washington State Attorney General
- Online Complaint Form: http://www.atg.wa.gov/file-complaint
- Phone: 1-800-551-4636 (in Washington only), 206-464-6684, 1-800-833-6388 (Washington State Relay Service for the hearing impaired)
- Consumer Protection Division: http://www.atg.wa.gov/consumer-protection
Consumer Protection in Washington
Washington State is known for being at the forefront of consumer protections, and a model example for how other states can make laws to better protect consumers from predatory lending practices. The Attorney General’s office frequently reports on scam alerts and updates pending lawsuits in progress to enforce consumer protections, so that consumers are always up to date on what their Attorney General and the CFPB are doing to protect them. For more robust consumer protection information in Washington State, as well as detailed descriptions of different types of deceptive business practices and common scams are available online as well.
With so many resources available from trusted sources, you know there is always somewhere to turn if you feel that you are being taken advantage of and unsure how to protect yourself!
Guides to Payday and Title Loans in Washington Cities
Payday and title loans are a big issue for Washington residents. And it gets even more complicated at the city level. Check out these payday and title loan guides to the following cities in Washington:
Seattle | Spokane | Tacoma
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