Florida may ease regulations for predatory payday lenders

Inside Subprime: January 31, 2018

By Caroline Thompson

Under current Florida law, subprime borrowers in the Sunshine State can take out a payday loan of up to $500 and expect a payback term between one week and 31 days. Payday lenders are allowed to charge borrowers a maximum fee of 10 percent of the amount borrowed, plus a $5 verification fee, and the borrower can only have one outstanding loan a time.

These restrictions were put into place back in 2001 as a way to protect vulnerable Floridians from falling into dangerous, costly debt traps at the hands of predatory payday lenders. But Florida lawmakers have recently begun the process of dismantling these laws in response to new regulations from the Consumer Financial Protection Bureau, which are set to go into effect in 2019.

The CFPB regulations would require payday lenders to, among other things, actually check that the people they’re lending to can afford to pay back their loans. Under current regulations, many subprime lenders don’t even verify borrower income, a practice which can trap desperate people in a debt cycle they may never be able to pay their way out of. While the future of these CFPB regulations is currently in question, given acting director Mick Mulvaney’s efforts to dismantle the bureau from the inside out, Florida lawmakers are seizing on their chance to change the game for payday lenders.

A bill currently going through the Florida state House and Senate would double the current $500 loan limit, allowing subprime consumers to borrow up to $1,000 at a time. Additionally, lenders would be allowed to offer longer loan terms, between 60 and 90 days, during which time the borrower would be charged up to 8 percent interest on their principal balance on a biweekly basis. On Monday, a Senate panel voted in favor of the bill amid a torrent of criticism from consumer advocacy groups in the state.

Alice Vickers, an attorney for the non-profit Florida Alliance for Consumer Protection, told reporters on Monday that the bill could jeopardize the financial futures of lower-income Florida residents, who may not fully understand what they’re signing up for.

“I think that people frequently go to payday loans because they can get the loans in 10 minutes, and the main problem with that is they don’t determine the ability to repay,” Vickers said.

Proponents of the bill say that payday loans, while not a long-term financial fix, are often the only option for people with poor credit who need quick emergency cash.

“These products are necessary in some of our districts, and these products help people get from payday to payday,” Rep. Sean Shaw, a Democrat who said he represents the most economically depressed area of Tampa. “Yes, it’s not ideal. There are people whose budget requires this sort of product.”

The bipartisan bill in the House is sponsored by Tampa Democrat, Minority Leader Janet Cruz, and Tampa Republican, Rep. James Grant.

If passed, it would create a new category of payday loans that would fall outside the CFPB regulations, should those actually come into effect.

According to an op-ed in the Orlando Sentinel, the fees charged on this new kind of payday loan would come out to more than 200 percent in annual interest. The op-ed goes on to point out that “according to calculations from legislative analysts, a typical borrower would pay almost twice as much in fees over 60 days on a single, $1,000 loan—about $217 —than he or she would on two, 30-day $500 loans—$110—under current law.”

“This is a big step in the wrong direction for consumers,” wrote the Orlando Sentinel Editorial Board.

To learn more about the dangers of payday lending in Florida, check out these related pages and articles from OppLoans:

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