When hit with bills they can’t pay, many Americans — including more than a million in Florida — fall back on payday loans: small-dollar, high-cost cash advances that they commit to repay out of their next paycheck. But many of these borrowers wind up stuck on a treadmill of repeated loans and mounting fees that leaves them further behind financially.
Last fall the federal Consumer Financial Protection Bureau issued long-awaited rules to crack down on predatory practices among payday lenders. The rules, scheduled to take effect in August 2019, would require those lenders to determine upfront whether borrowers can afford to repay their loans and fees when they come due.
Now the Trump administration is sending signals that it will nix the rules, which were developed under the Obama administration. This creates a prime opportunity for states to take back the initiative from Washington to protect their residents from predatory payday lending.
But in Florida, the Legislature is advancing a bill in both the House and Senate that would circumvent the new federal rules — assuming they last — by creating a new category of payday loans that would fall outside their requirements.
The bill would allow consumers to borrow up to $1,000, twice as much as the current $500 limit in state law for payday loans, and extend the maximum repayment period from 31 days to between 60 and 90 days. These changes would be enough to let payday lenders in the state evade the proposed federal rules.
Supporters of the bill argue Florida law already provides good protections for payday borrowers in a law passed 17 years ago, spurred by a Pulitzer Prize-winning series of Sentinel editorials. But groups representing Florida consumers, seniors, veterans, minorities, churches and the poor vehemently disagree. So did former CFPB Director Richard Cordray, who faulted the state’s law in 2016 testimony to Congress for allowing high fees and repeat borrowing.
Why might legislators in both parties discount this criticism? Consider that payday lenders, led by Tampa-based Amscot, have made millions of dollars in campaign contributions to Republican and Democratic officeholders in Florida. They have hired high-profile lobbyists to plead their case, like former Democratic Congressman and state Sen. Kendrick Meek of Miami.
The industry has deep pockets. From July 2016 through June 2017, Floridians borrowed $3.09 billion from payday lenders and paid $306 million in fees, according to legislative analysts. Of those borrowers, about two-thirds took out four or more loans in that 12-month period, belying the industry’s claim that most borrowers use payday loans rarely. In fact, nearly 38 percent of borrowers took out 10 or more loans during the year.
The fees permitted under the bill for the new, higher-limit loan would amount to an annual interest rate of more than 200 percent. And according to calculations from legislative analysts, a typical borrower would pay almost twice as much in fees over 60 days on a single, $1,000 loan — about $217 — than he or she would on two, 30-day $500 loans — $110 — under current law. This is a big step in the wrong direction for consumers.
For a step in the right direction, legislators can look to models in other states. Colorado, for example, passed a law in 2010 that replaced two-week payday loans with six-month installment payday loans at effective interest rates nearly two-thirds lower, according to the Pew Charitable Trusts. Credit is still “widely available” in the state, Pew says, and consumers save tens of millions of dollars a year in borrowing costs.
It’s time for Florida to strengthen, not weaken, its protections for payday borrowers.
