Recently there has been extensive national attention paid to the lending practices of banks as the American public's understanding of the current recession deepens. As the entire nation scrutinizes the regulation of national and regional banks and larger lending institutions, Montanans should pay attention to the smaller lenders that prey upon the working poor. Both subprime mortgages and payday loans are products of predatory lenders and are never in the borrowers' best interest. Now, more than ever, it's time to regulate an industry that takes advantage of the borrower's desperation and lack of knowledge of reasonable lending practices and alternative loan products.

Last week two bills to cap payday loan lending rates died during blast motions in both legislative bodies after they were tabled in committee. However, this issue remains critical to the economic wellbeing of all hard working Montanans. Payday lending is a debt trap that has devastating effects and dire consequences for Montanans consumers.

A payday loan is the practice of using a post-dated check or electronic checking account information as collateral for a small, short-term loan. The lender can charge fees not to exceed 25 percent of the amount borrowed. For a $300, 14 day loan, Montana payday lenders can legally charge an annual percentage rate of 650 percent. At the height of Mafia lending in New York City, their interest rates were only 250 percent. The high APR and structure of the loans sucks borrowers into a vicious cycle of debt, where the borrower is often forced to take out another payday loan immediately after paying off the previous one just to pay monthly bills.

In 2007, almost 39,000 Montanans took out over 181,000 loans totaling over $47 million. During that time Montanans paid nearly $8.5 million in interest and fees to payday lenders. To make matters worse, in 2007 there was an average of 4.7 loans per borrower, and 21 percent of borrowers took out 13 or more loans.

This industry deliberately targets borrowers who are in financial crisis. With such a high payback on their loans, payday lenders are willing to lend to virtually anyone with a checking account and regular income. To some families strapped for cash, a payday loan seems like a good option when the car breaks down or an emergency creates unplanned medical expenses. But they quickly learn that the high interest rates are designed to keep them in a cycle where the payday loan drains money from future paychecks before they are earned.

Both dead bills would have capped payday lending rates at 36 percent APR which would have created a more reasonable short-term loan product for Montanans. This rate cap is the same rate the US Congress deemed appropriate for military personnel and their dependents when it enacted the John Warner (R-VA) National Defense Authorization Act of 2007.

The bills' opponents argued that Montanans need this loan product to help weather short-term financial crises and that alternative loan products don't exist. However, credit unions in 21 Montana communities currently offer alternative short-term loan products, and most conventional banks offer similar advances at a more reasonable APR. Payday loan products didn't even exist in Montana before 1999.

The critics of a 36 percent interest rate cap will claim that payday loans are cheaper than bounced checks and credit card late fees, but defensible studies by the Center for Responsible Lending demonstrate that typically payday loans are twice as expensive as credit card late fees.

Between 2005 and 2007 Montanans paid over $26 million in interest and fees to payday lenders. A rate cap of 36 percent may have kept a larger portion of that $26 million in the pockets of hard working Montanans and been spent locally for groceries, gas, or other services. No one should pay triple digit interest rates for access to credit. Call your elected official and tell them you want real reform of the payday lending industry. Montanans deserve better.

Jodi Medlar of Helena is program director for the Women's Foundation of Montana, which works to elevate the economic status of women in Montana.