Payday Loans in Nebraska: Subprime Report

When it comes to poverty, the Cornhusker State fares better than many others in the Union. Nebraska’s poverty rate of 11.4% is just slightly lower than the national poverty rate of 12.7%. But it still means that more than 200,000 Nebraskans lived at or below the federal poverty line, which was defined as $24,340 for a family of four, in 2016.

Nebraska has the 15th lowest poverty rate in the country, which may be surprising given that – according to the U.S. Census Bureau – the median household income in Nebraska is $54,384, compared to $55,322 nationwide. But that still leaves plenty of room for struggling Nebraskans to fall into predatory lending traps. In fact, 8.2% of Nebraskan households used some form of high-risk credit in 2015. If borrowers are not careful, these short-term, high interest loans can start them on a cycle of endless debt.

Payday Loans in Nebraska

In Nebraska, payday loans are legally referred to as “delayed deposits,” as borrowers write a post-dated check as collateral for their loan. Nebraska law requires that lenders have a license in order to operate in the state. That license costs $500, and every additional branch costs $125. This might seem pretty cheap, but it’s not like any Joe Shmoe can open up a payday loan shop with a couple thousand bucks. In addition to the license, every lender needs to have a $50,000 bond, plus an additional $25,000 per branch in order to fund the loans they’re giving out.

There are 99 payday loan operators using about 180 storefronts in the state of Nebraska, which works out to 7.97 stores per 100,000 people. That is slightly more than the number of McDonald’s in the state (89). Neighboring Kansas, however, has nearly double the payday lenders of Nebraska (352).

Since online lending is illegal in Nebraska, lenders must have a physical storefront location in order to lend out money to consumers in the state. Keep this in mind if you see an ad for online payday loans (or title loans) in Nebraska. These ads are either a result of the company’s search engine optimization strategy or they are illegal.

Unfortunately, there is no database for how many payday loans Nebraskans use each year, but the estimated number for the Omaha metro area was 374,000 loans in 2016. Those 374,000 contributed in part to the $30.8 million in payday fees that Nebraska citizens paid that year.

In addition to not being required to contribute to such a database, Nebraska lenders are also not obligated to provide Truth in Lending Act disclosures. These lax regulations can harm consumers in the long run. Without access to reliable facts about the dangers of payday lending, it can be difficult for lawmakers to regulate the industry, and a lack of data on this topic means less reporting on it in the news, which results in Nebraskans staying in the dark about the dangers of payday loans.

The History of Payday Loans in Nebraska

Payday Loans are legal and regulated in Nebraska thanks to the Delayed Deposit Services Licensing Act (Neb. Stat. Ann. §§ 45-901), which was originally passed in 1994. The Cornhusker State was part of a group of 19 states that passed similar legislation in 1994. Ever since, the industry has been regulated by the Nebraska Department of Banking and Finance. But the rules in place today have changed over the years.

After the law was initially enacted, the first reforms to the “Acts Prohibited” section happened in the year 2000, by Legislative Bill 932. This bill added language that allowed lenders to hold checks beyond what was then the 31-day threshold if the check was “not negotiable,” meaning that it couldn’t be cashed. The next changes came in 2006 with LB 876, which extended the loan period to 34 days, but also took away the customer’s ability to rollover loans. LB 140 was the most recent – and also most mild – update to payday lending laws in Nebraska. This provision simply updated where to find the definition for a “financial institution.”

The Consumer Financial Protection Bureau (CFPB) issued rules governing the payday loan industry in 2016, which would have preempted the Nebraska DDS Act and expanded the amount of information collected by DDS entities, according to Mark Quandahl, director of the Nebraska Department of Banking and Finance. These rules would require lenders in all 50 states to determine if borrowers have the ability to repay without re-borrowing or defaulting. It would also require them to collect and verify income information, consult a database to look for simultaneous loans by one borrower, and keep loan records to show compliance with these rules. As of January 2018, the CFPB is reconsidering these rules, though it seems unlikely that they will go into effect.

Nebraska Payday Loan Rules and Regulations

In addition to the various restrictions around payday loans in Nebraska, lenders have to follow certain steps at the time of providing the transaction. They must provide the borrower with a notice in plain English that displays:

  • The fee to be charged for the transaction,
  • The date the check with be deposited or cashed, and
  • Penalties to be assessed if the lender is unable to deposit or cash the check, which cannot exceed $15.

The Nebraska Department of Banking and Finance examines all licensed lenders at least every 18 months, but tries to visit every 14 months according to Quandahl. After these visits, the department will send the licensee a report which requires a written response addressing violations. Depending on severity of the violations and past history, this can result in fines or other corrective actions. In 2016, the department entered into 11 consent decrees with lenders that included fines totaling $47,850, most of which were related to record keeping.

Compared to other states, Nebraska has some reasonable safeguards in place to protect consumers, such as limits on how much one can be loaned. But even with some protections, predatory lenders still exist. Remember, even a small loan can become a crushing debt very quickly when APR is over 400%. One Nebraska resident, Glenda Wood, estimated that she spent close to $10,000 to repay the original $500 loan she received. The initial loan doesn’t seem like much, and that is intentional. Predatory payday lenders don’t want you to be able to pay back your initial loan on time, because they make so much more money when you can’t.

Quick Facts: Payday Lending in Nebraska
  • Maximum Loan Amount:$500, and lenders can hold no more than two checks from one person at a time.
  • Loan Term:34 days
  • Fees and Finance Charges:“No licensee shall charge as a fee a total amount in excess of $15 per one hundred dollars or pro rata for any part thereof on the face amount of a check for services provided by licensee.”
  • Finance Charge on a 14-Day, $100 Loan:$17.65 for every $100 loaned
  • APR on a 14-Day, $100 Loan:459%
  • NSF Fee:$15
  • Cooling-Off Period:None
  • Rollovers Permitted?:No

Title Loans in Nebraska

Title loans are different from payday loans, or delayed deposits, because instead of giving a post dated check as collateral, a borrower offers their car instead. These loans are marketed as 30-day loans, but the average borrower rolls over the loan eight times and pays back more than 200% of the principal.

The car can be used during the course of the loan, but if the loan goes unpaid, the lender can legally take your vehicle. According to a 2016 Consumer Financial Protection Bureau study, one in five title loan borrowers eventually have their car repossessed. When financially vulnerable people lose their vehicles, they often lose much more as it becomes difficult or impossible for them to get to work, thus continuing the cycle of debt.

In 2016, title loan fees drained $3,846,479,876 from the U.S. economy. But not every state contributed to this. In fact, not one of those billions of dollars was paid to a title lender in Nebraska. How is this possible? Well, luckily for Nebraskans, title loans are not, and have never been, legal in the state.

The History of Title Loans in Nebraska

Nebraska is one of 30 states that do not allow title loans, and this is true for both physical storefronts and online title loans. Unfortunately, nearby states don’t all have the same laws related to title loans, and this means that Nebraskans can still become ensnared by title loans in neighboring states. A simple Google Maps search reveals title loan businesses just across the border from Nebraska.

Nebraska Title Loan Restrictions

Title loans are indeed illegal in Nebraska, but if you Google “title loans in Nebraska,” websites will appear claiming they can offer such services to Nebraskans. Don’t be fooled. These businesses are trying to optimize for clicks by using the keywords “title loans” and “Nebraska” together, but legally, they can’t offer title loans to people who live in Nebraska. If they claim they can, they’re operating an illegal business, and you should report them to the Nebraska Department of Banking and Finance (see section below for details).

Title loans are legal in neighboring states like Missouri, South Dakota, and Kansas, but driving out of state to borrow money from title lenders is probably not going to end well for you. If half the states in America think it is a bad idea, it probably is.

Title loans in Missouri are particularly dangerous, as there are no limits on the rates title lenders can charge there, though past reports have found APRs ranging from 183% to 377%, so expect to pay a lot more for your loan than advertised if you choose to go this route. More information on title loans in Missouri can be found here.

South Dakota’s laws on title loans changed in favor of consumers thanks to a ballot referendum in November 2016 called Initiated Measure 21. This measure capped the interest rates charged by money lenders licensed under South Dakota Codified Law chapter 54-4 at 36%. This included payday and title loans, but not companies like banks or other federally insured institutions. The ballot measure was fiercely opposed by trade groups, but passed with an overwhelming 75% of voters saying yes. So while title and payday loans are still legal in the state, many lenders have forgone renewing their licenses.

Kansas is one of four states (along with California, Louisiana, and South Carolina) that do not explicitly authorize title loans, but allow them through loopholes in the state law. Nebraska’s southern neighbor does this by doling out title loans as “open-ended credit,” which allows these lenders to charge triple-digit annual rates instead of being regulated under title loan laws that would cap interest rates at 36%. More detailed information on title (“open-ended credit”) and payday loans in Kansas can be found here.

Final Notes on Title Loans in Nebraska

Again, while title loans are not legal in Nebraska, it is important to know how dangerous they are so you can resist the temptation of crossing the border to get one. Losing your car can seriously hamper not only your life but also your finances, as this makes finding and getting to work a much more difficult task. There are better loan options out there that do not involve potentially losing a car.

Regulating Payday and Title Loans in Nebraska

Like every state, predatory lending practices still exist in Nebraska. A predatory lender is defined as anyone who is breaking the lending laws and regulations laid out by the state. But there are also more subtle ways that lenders can prey on customers, as we saw in Glenda Wood’s story of being “encouraged” to continue borrowing even when the lender knew she couldn’t afford it.

While debtors’ prisons are technically illegal, according to an ACLU report, Nebraska creditors have in the past attempted to leverage the court system and use the threat of imprisonment in order to motivate borrowers into paying on time. While the examples in the ACLU report didn’t directly involve Nebraska payday lenders, they easily could have.

Take neighboring Missouri, where a woman who owed $425 to a lender was jailed for 3 days for not showing up in court. By the time she realized that police were looking for her and she turned herself in, her fees and interests had doubled, and her mother paid $1,250 to get her out 3 days later (using borrowed money). That money then went to the lender. Nebraska law only requires that authorities attempt to serve court summons at the person’s last known residence or place of employment, meaning Nebraska debtors can be held in contempt of court and arrested without realizing they had been ordered to appear.

How to Report a Predatory Lender in Nebraska

Even if you fall victim to a predatory lender, all hope is not lost! If your lender is breaking the law, file a complaint with the Nebraska Department of Banking and Finance (NDBF). But before going to the NDBF (or taking out a payday loan for that matter), consider the following:

  • Please (we cannot stress this enough) document absolutely everything relating to your loan: bank statements, receipts, correspondence, etc.
  • If your lender is harassing you via phone and they are within the state of Nebraska, you can legally record that they are doing so, as long as you are participating in the call, thanks to one-party consent laws in Nebraska. DO NOT do this if it is an interstate call, as that would fall under federal law.
  • You must also prove you have attempted to resolve the matter with your lender before contacting the NDBF.
  • Again, documenting every little thing is important, as your lender will probably use every little thing they can against you!

Nebraska Department of Banking & Finance

  • Address: 1526 K Street, Suite 300, Lincoln, NE 68508-2732
  • Phone: (402) 471-2171

If you are a victim of predatory lending, use these state resources. Your speaking up could save the next person from being a victim as well.

If you need outside legal help, contact Nebraska Appleseed. While they do not take on individual cases, they may refer you to someone who can, as well as give legal information and offer supportive advice.

Consumer Protection in Nebraska

The biggest effort to tighten laws around payday lending in Nebraska emerged in 2017 with Legislative Bill 194. This bill would have capped the APR at 36%, and monthly payments at 5% of a borrower’s gross income. The bill was introduced by Senator Tony Vargas on January 10, 2017 and while it is still a priority for the senator, outside of a hearing with the Banking, Commerce and Insurance Committee on February 21, 2017, there hasn’t been any movement forward with the legislation. Similar legislation has been introduced in other states, like Kansas and South Dakota, which was followed by loud opposition from lobbying groups.

If you want to see changes like this in Nebraska, it is important to use your voice, and let your representatives know you are watching them.

Even with the modest protections that Nebraskans are provided against predatory lenders, you should think twice before taking out a payday loan. No matter how much you know about the subprime marketplace in Nebraska, it can be difficult to get out from under the cycle of debt created by short-term lending.

Guides to Payday and Title Lending in Nebraska Cities

Predatory lending in Nebraska is a big issue for residents. And it gets even more complicated at the city level. Check out these payday and title loan guides to the following cities in Nebraska:

Omaha | Lincoln | Grand Island

Works Cited