Payday Loans may no longer be able to charge as high interest rates in Montana, if Initiative 164 (I-164) succeeds. If I-164 is voted on in absentee ballots and at the polls on November 2, the interest rate that payday loans and title loans can charge will be capped.

Those in support of the financial reform that I-164 presents believe that it will protect Montana borrowers predatory lenders, who prey on people that desperately need money before their paycheck is in hand. If it is approved, payday lenders and title lenders will only be able to charge an annual interest rate of 36 percent or less.

Even though 36 percent seems like a very high interest rate to charge for a loan, when you look at the payday loan industry currently, it is nothing. Currently lenders can charge up to a 25 percent, 1 time fee on a 2 week loan. For example, a $100 loan could charge the borrower $25. If the loan isn’t paid back on time, the lender can not charge additional fees. However under the new legislation, the lenders would only be able to charge $1.38 on a $100, 2 week loan. This would make it almost impossible for payday loan companies to stay in business in the state of Montana.

“A 650 percent annual interest rate is far too high and traps borrowers in a cycle of debt from which it can be very difficult to escape,” said Tom Jacobson, executive director of Rural Dynamics Incorporated.

Others argue, “If a borrower is willing to pay the fees, why not allow the lenders to charge it?”

Could other states follow Montana’s lead? If I-164 is approved in Montana, expect other states to begin talking about implementing similar rules.

What do you think. Should the government control the payday loan industry?