Payday lenders disappear from Bellevue, rest of state after interest rates capped at 36% | Bellevue
Nebraska’s payday lenders have all shut down in the two years since voters capped the rate they could charge.
The last handful relinquished their delayed deposit service business licenses in December, according to records from the Nebraska Department of Banking and Finance.
Just six months earlier there had been 19 such companies. That, in turn, was fewer than the 65 companies licensed on June 30, 2020, just before Nebraskans passed a voting measure that limited companies to charging 36% APR. The measure was passed with over 80% approval.
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Former Hyannis State Senator Al Davis, a responsible lending leader for Nebraskans who pushed the election measure, showed only mock sympathy for the industry’s disappearance from Nebraska.
“Isn’t that a shame!” He said, adding, “They portrayed themselves as good Samaritans helping people, but they were anything but.”
Davis said he didn’t expect all payday lenders to close, although he expected the number of such businesses to decline significantly. He noted that ahead of the 2020 vote, industry officials predicted some lenders were likely to hold out.
On the other hand, Ed D’Alessio, executive director of INFiN, a national trade association that represents delayed deposit companies, said the closures were predictable based on the experiences of other states that have imposed similar rate caps.
“Nebraska’s 36% interest rate cap on delayed deposit loans was never about consumer protection,” he said. “It was about a thinly veiled desire by activists to end a regulated service that is valued by many.”
D’Alessio predicted that “Nebraska will likely learn the hard way that illegal lenders thrive under restrictive, arbitrary, and antiquated interest rate caps, with little consumer protection.”
Payday loans, also known as cash advances, check advances, or delayed deposit loans, are a type of short-term, expensive borrowing that people use to get small amounts of instant cash.
Lenders typically charge a 15% fee instead of traditional interest for a short period of time. For example, a customer might write a $100 check dated two weeks in the future, and the lender would give that person $85 in cash. Converted to an annual interest rate, the results can be astounding.
A state report showed that payday borrowers in Nebraska paid an average of 405% APR in 2019. The 1994 Nebraska Payday Lender Approval Act exempted them from the general 16% interest rate cap.
As a result, borrowers can spiral into a debt spiral, paying hundreds or thousands of dollars in fees over time and falling further and further behind financially. Some lose bank accounts or even go bankrupt.
Reports from the state banking department showed that about 50,000 people in Nebraska took out payday loans in 2019. The average loan was $362 and the average person received 10 loans over the course of the year.
The coalition that moved to put the interest rate cap on the ballot and pushed for its passage included several organizations that work with or advocate for low-income Nebraska families, children and the elderly — the groups most likely are affected by payday loan debt.
In response, industry officials argued that the cap would put most, if not all, payday lenders out of business, leaving customers with no good alternatives when they need money.
Kent Rogert, a lobbyist for payday lenders, said the 36% cap means those lenders could only make about $1.38 per $100, which isn’t enough to survive in a business where up defaulted on 40% of loans.
“The amount of money you would make is less than the cost of processing those transactions,” he said. “You can’t pay the light bill for that.”
Rogert pointed out that some previous delayed deposit deals may still be open to offer other services, e.g. B. Cashing paychecks for a fee. He said he doesn’t know what former clients are doing now when they need a quick buck.
but a report from 2017 from the Center for Responsible Lending said research in other states has found that when the lending industry shuts down, people turn to less costly means of making money. These include loans from family and friends, advances on credit cards, spending cuts, and savings.
Patricia Herstein, general counsel for the Nebraska Banking Division, listed a few other options. She said some people may take advantage of installment loan companies, which are allowed to charge up to 24% interest on the first $1,000 and 21% thereafter.
Others may have crossed state lines to find payday lenders in Iowa or other states. Some have turned to online lenders, which typically charge very high interest rates and are not government regulated. Herstein said the state agency had filed a few complaints about the online companies and reached out to them with mixed success.
She and James Goddard, senior director of the program at Nebraska Appleseed, another group that supported the ballot measure, said more Nebraska credit unions had been offering small loans.
So far, Goddard said, Nebraskans who need money seem to be finding ways. He said Appleseed hadn’t heard from people in the community that they were struggling to find alternatives, not like they had heard from people struggling after taking out payday loans.
“It’s a harmful product that keeps people stuck in a cycle of debt,” he said.