Payday loan legislation out of Florida
Democrats and Republicans constantly have heated debates regarding new legislation, party issues, and everything in between. While this seems to be the norm, there is one issue that both parties seem to have agreed upon: payday loans. You read that correctly. Legislators are taking aim at payday loans and they do not seem to have the consumer’s best interests at heart.
What is the legislation?
The legislation was introduced by Florida Congressman Dennis Ross and has been somewhat ironically named the Consumer Protection and Choice Act. The Act is being backed by the Chair of the Democratic National Committee, Debbie Wasserman-Schultz; also from Florida. The Act was drafted in response to the Consumer Financial Protection Bureau’s plan to create a set of rules intended to curb the more contemptible aspects of payday lending (hefty fees, sky high interest rates, and not enough time to repay the loan).
Wasserman-Schultz and Ross both want Florida to be the model by which all other states will follow. The problem is that Florida’s payday lending rules are not the ideal paradigm. The CFPB wanted to institute a set of rules that would protect the consumer by offering debt trap prevention and protection. The new bill falls short in some of the areas the CFPB wanted to cover. This was true not only for payday loans, but also for any credit product that requires consumers to pay back the loan in full within 45 days, so it would include deposit advance products, some vehicle title loans, and certain open-ended lines of credit.
That’s a good thing, right?
Well, it would be; except, the CFPB has yet to release its draft of rules. The proposed bill, would not only delay the CFPB’s efforts to structure payday lending, but would also exempt states with existing restrictions on payday lending. This is a huge problem for the consumer. The existing bill does not structure fees or interest in the way that the CFPB wanted to do. This is not good for small business owners and entrepreneurs. Often, entrepreneurs need these untraditional loans between paydays to make ends meet. This bill does not protect the consumer and you need to be aware of the pitfalls.
Why this matters
According to The Consumerist (via Huffington Post), in December, a letter [PDF] was sent to all members of Congress, along with members of the Consumer’s Union, noting that “in spite of the industry-backed Florida law, 88% of repeat loans were made before the borrower’s next paycheck,” and 85% of payday loans are issues to people who have taken out at least seven loans per year.
The Huffington Post cites data from Pew Charitable Trusts, stating the typical Florida payday borrower takes out nine loans in a year, and spends about six months of the year in debt. Pew calculated the average APR on Florida payday loans at 304%, not much of an improvement on the national average (where payday loans are allowed) of 390%. This is the model by which all other states will conform, if the bill passes. This doesn’t seem like much protection for the consumer.
Due to high interest rates and small amount of time to pay back the loan, borrowers are continually in debt (a no-win situation for small businesses using this loan method to survive).
#PaydayLoans
