HARRISBURG, Pa. (6/5/13)--Legislation that would legalize a new type of short-term loans called "microloans" and place a cap on the loan amount was introduced Friday in the Pennsylvania Senate, reports the Pennsylvania Credit Union Association.
The measure, introduced by State Sen. Pat Brown (R-Lehigh County), would provide an avenue for borrowers to earn their way to longer-term, less expensive loan products, said PCUA (Life Is a Highway June 4).
Legislation to legalize so-called payday loans stalled last year in the Senate after passing the House.
The bill would cap the maximum loan amount to 25% of the consumer's gross monthly income, limit interest rates for each loan at 28%, and restrict fees to 5% of the loan amount. Loans could also be rescinded the next day without penalty or fee and an extended repayment option allowed.
PCUA's Credit Union Better Choice program offers a payday loan alternative that includes financial counseling and required saving with a lower-cost short-term loan. More than 70 credit unions in the state offer 90-day loans with a $500 limit. Since the program launched in 2006, it has loaned more than 64,000 short-term loans--totaling $32 million--to credit union members.
The program has saved borrowers more than $23 million overusing a traditional payday lending product, said PCUA.