Advocates seek reform for predatory payday loans

Dr. Garth Rose

Urges congressional representatives to support initiatives proposed by CFPB

As the debate over payday loan regulations escalate on the national stage, local advocates are calling for state rules to be reformed, calling on the Sunshine State’s congressional representatives to support upcoming initiatives proposed by the Consumer Financial Protection Bureau (CFPB).

Payday loans have served as a safety valve for many South Floridians, particularly low-income earners. Florida has state restrictions on such loans, include $500 loan limits, a maximum of 10 percent in fees, and term limits set between 7 to 31 days. The regulations, however, says Plantation credit counselor and advocate Desireen Morales, does little to protect consumers from quickly accumulating interest.

Instead, borrowers often are unable to pay off both the payday loan and the interest, “mostly because their incomes don’t permit this,” says Morales. Her research shows that “over 55 percent of borrowers contract the maximum loan of $500, and renew the loan every two weeks at the 10 percent interest rate for up to 7 months. These borrowers are repaying an average of $700 over this period on the same $500 loan.”

A recent report from the Center for Responsible Lending payday loans in Florida also highlight the same concerns, showing accumulated interest payment of some $2.5 billion since 2005. In 2015, the average Florida payday loan had an annual rate of 278 percent, and loans roll over on average nine times, in the consumer’s effort to pay outstanding interest.

The CFPB plans to introduce federal loans addressing these concerns. The new rules, which have yet to be released in full, include “debt trap prevention” requirements, which would require “lenders to determine at the outset that the consumer can repay the loan when due – including interest, principal, and fees for add-on products – without defaulting or re-borrowing.” In addition, Debt trap protection requirements would make lenders limit “limit the number of loans a borrower could take out in a row and over the course of a year.”

Other advocates like the NAACP and the Southern Poverty Law Center are supportive of the Bureau’s initiative. However, several congressional representatives from Florida, including Rep. Debbie Wasserman Schultz, have spoken out against the bill, arguing that it may undermine already effective state regulations. Many have signed on in support for the Consumer Protection and Choice Act, which would allow states to avoid the CFPB rules — provided they adopt the payday laws of Florida. Members of Florida’s congressional delegation have pushed CFPB Director Richard Corday to explain how the CFPB’s rules will impact Florida’s existing law and consider using Florida’s law as a model for national regulation. Local political opponents running against incumbent Florida congressional members have claimed that this resistance to the CFPB rules is due to the campaign funding they receive from payday loan companies.

Though the issue has become politically charged, “we must prevail over the opposition,” said Morales. “These loans seem to help the financial strapped, but they’re really a burden making the poor, poorer while the lenders make billions.”

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