Fact vs. Fiction in Payday Lending Legislation

by | Feb 12, 2018

Though Florida is one of the strictest states in terms of payday lending regulations, a new rule from the federal Consumer Financial Protection Bureau, ostensibly adopted to protect consumers across the nation, could actually eliminate some protections in Florida, or end up eliminating short-term credit as financial tool for over a million Floridians.

Under current Florida law, short-term loans are capped at $500 and a term of not longer than 31 days. Loan fees cannot exceed 10% of the loan amount, and borrowers are limited in terms of the number and frequency of loans they can take out. The new federal rule is a one-size-fits-all solution designed to toughen standards across the nation, including states with no restrictions whatsoever. Florida’s tough laws could fall victim to this blanket approach. Unless the state legislature takes action to pass new regulations, consumers may not have any option at all for short-term “emergency” loans – short-term access to capital that help them make rent payments, car payments or meet other financial obligations.

A small group of faith leaders held a media teleconference last week to oppose any attempt to make Florida’s existing laws compliant with the new federal rules. But during their conference call, they made several claims that aren’t supported by facts. Among them:

CLAIM: These bills are designed to trap people in a cycle of debt so that consumers are not able to repay lenders without renewing the loan.

FACT: The bills are designed to protect consumers, not trap them. Even existing Florida law has protections in place to prevent exactly this sort of predatory lending. Borrowers and lenders are restricted by a 24-hour “cooling off” period that prevents lenders from renewing existing loans. Borrowers have to pay off existing loans first, and then wait 24 hours before seeking a new loan. And it works. The largest group of short-term credit borrowers, representing 15% of all such consumers, only take out a single loan in any given year. The second largest group of borrowers, at 9%, only take out two loans per year. 

CLAIM: A victim of predatory lending shared his story on the call, claiming that he became trapped in a continuous cycle of loans and renewals that he couldn’t pay off.

FACT: The only way the anecdote could be true is if a borrower sought credit from lenders who were not regulated in the state of Florida. There are internet lenders or out-of-state lenders who sometimes prey on Florida citizens, but by definition these bad actors are not following Florida’s tough short-term credit regulatory rules.

CLAIM: Payday loans financially devastate borrowers because they are structured to keep them paying the triple-digit fees over months or years, whether they are short or longer-term loans.

FACT: Under current Florida law, the finance charge and the length of the loan is limited to 10% of the loan amount, and a repayment period of not longer than 31 days. Under the new proposal under consideration by the legislature, the finance charge would be limited to just 8% of the outstanding balance of the loan and the loan term would be limited to 60 or 90 days. 

CLAIM: Payday loans charge triple digit (over 200%) annual percentage rates (APR).

FACT: The APR on the proposed loan is theoretical. No one will pay interest annually. Finance charges may not be charged beyond those allowed under the 60-90 days of the loan. Even if the loan goes into default, interest may not be charged or collected beyond the original 60-90 days.


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