Consumer Protections

Everyone, regardless of their income, should have fair and reasonable consumer protections when they borrow money. However, across our state payday lenders, banks and debt collectors prey on low and moderate-income communities, people of color, seniors, and military personnel. High interest rates and unfair risky loan terms threaten the financial security of many people in Washington. Consumers need strong protections that safeguard their crucial assets and their ability to meet their basic needs.

 

Background


Payday and “Installment” Lending
Payday Lenders target people who work for low to moderate wages with loans that carry a typical APR, or annual interest rate, of over 390%. These loans are designed with terms borrowers usually cannot meet, forcing them into high-cost, long-term debt. An average payday loan borrower repays $827 to borrow $339. At a time when working families need every penny to help meet their basic needs, Washington borrowers need access to small-dollar loans they can successfully repay. Loans that carry triple-digit interest rates are not those loans.

Recently, we have been fighting bills that would create a “new” high-cost installment loan products. The proposed products may have a different pay structure than payday loans, but that’s about where the difference ends. They often carry high interest rates and ridiculous fees, trapping people into a debt cycle, and allowing for borrowers to be in debt for a full year. Moreover, high cost installment loans seek to completely skirt the consumer protections we passed in 2009 (see below for more information on the success of that law).

Debt Settlement 
Debt settlement companies, also called debt adjusters, reach out to debt-burdened consumers with bold offers to help eliminate their debt by negotiating on their behalf. The debt settlement model usually requires that Washington households stop paying their creditors. Consequently, consumers suffer reduced credit scores, the escalation of collection actions by creditors, wage garnishments, collection lawsuits, and even bankruptcy. Research finds that consumers would be much better off working directly with their creditors than if they hire a debt settlement firm to negotiate for them.

Debt and Debt Collection
Families fall into debt for a variety of reasons, including illness, a medical event, job loss, or other life-changing situation. Fringe financial services targeting people in debt has seen rapid growth and change over the last five to ten years. In our state there has been a rise in debt collectors exploiting struggling Washington families, often leaving them worse off than when they started. We need strong regulation of predatory debt collection practices that threaten to deprive Washingtonians of their hard earned income.

Mortgage Lending and Foreclosure Prevention
Homeownership is a family’s most valuable asset and largest source of household wealth. However, families across the state are losing their homes to foreclosure at alarming rates. Between 2009 and 2011, over 110,000 families in Washington lost their homes—and foreclosure rates continue to soar. Lax underwriting practices, dangerous loan products, and a disregard for affordability have set up vulnerable homeowners to fail. As a result, many families with the most to gain from home ownership will lose their homes.

Emerging Consumer Protection Priorities


Zombie Debt (also know as Time-Barred Debt)
Zombie debt is when companies sell their old, uncollected debts for pennies on the dollar to third-party debt collection agencies. Debt collection companies then try to collect on old debts. Old debt comes back to consumers like a zombie coming back from the dead. If you pay a partial payment, it restarts the clock on the statute of limitations. The burden of proof lands on consumers, many which do not have documentation to prove that they already paid the debt.

Wage Garnishment

Often people living on low incomes fall into debt and have their wages garnished when they are struggling pay their bills, feed their kids, and keep the lights on. Garnishment occurs when an employee’s wages are withheld to pay off a third-party debt. In today’s hard economy, working families making low wages should have sufficient funds to live on after a wage garnishment. Garnishment has significant impacts on consumers. Not only is their credit report severely damaged, but the income they use to provide for their family is substantially decreased.