Voters in Nebraska have moved closer to deciding whether or not to limit the amount of interest payday loans can charge, thanks to a local campaign that garnered 120,000 signatures.
the Nebraskas for Responsible Lending Coalition, which includes the state chapters of the AARP and ACLU among its members, said Thursday it has collected enough signed petitions to secure a move that would cap the annual interest rate on payday loans at 36% on the November ballot in the 2020 general election.
Currently, the average interest rate for a payday loan in Nebraska is 404%, according to the coalition. Lenders who offer these small loans, which you can usually take out by showing up to a lender with just a valid ID, proof of income, and a bank account, require borrowers to pay a “finance charge”. service and interest) to get the loan, the balance of which is due two weeks later, usually on your next payday.
Under current Nebraska laws, lenders can charge up to $ 15 per $ 100 loaned. Individual borrowers can take out loans up to $ 500, according to the Consumer Federation of America. This means that a two-week $ 500 loan that takes the maximum finance charge of $ 75 would have an APR of 391%.
To help change that, the coalition has collected more than 120,000 signatures over the past six months, far more than the 85,000 the group felt they needed to collect in early July to qualify. In Nebraska, you must collect the signatures of 7% of registered voters to get a measure on the ballot. The coalition has announced plans to send 127 boxes of signed petitions to the Nebraska Secretary of State, who will verify the signatures and determine whether or not the requirements have been met.
“For too long we have heard stories of families who have been caught in cycles of debt because of these unaffordable loans with average interest rates of 400%,” said Aubrey Mancuso, an organizer of Nebraskas for Responsible Lending, at a press conference Thursday. . “Lawmakers have not addressed this issue time and time again, and it will now be up to voters to decide whether a 400% interest is just too high.”
The coalition’s attempt to get a rate cap on the ballot follows 16 other states and the District of Columbia that have already put in place 36% interest limits on payday loans. During the last years, South Dakota voters approved a 36% cap in 2016 and Colorado followed in 2018. Ohio imposes restrictions on loan rates, amounts and term which entered into force last year.
Beyond tariff caps, Arizona, Arkansas, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, New Mexico, Pennsylvania, Vermont, West Virginia totally ban these types of loans. In the United States, 37 states have specific laws that allow payday loans, but with restrictions, such as variable interest rate caps and maximum loan amounts, according to the National Conference of State Legislatures.
Last November, federal lawmakers introduced similar legislation through the Fair Credit Act for Veterans and Consumers that would cap interest rates at 36% for all consumers nationwide. Biparty legislation – which is the latest attempt to curb payday lending at the federal level – was built from the framework of the Military Loans Act, 2006, which caps loans at 36% for active-duty members. But despite Democratic and Republican co-sponsors, the bill remains stalled, forcing state groups like the Nebraska Coalition to push local campaigns forward.
Currently, Nebraska appears to be the only state with a measure being polled during this election cycle, according to consumer advocates. Activists in Arizona have launched a campaign to ban similar high-interest car title lending in the state, but the the measure failed to gain sufficient support and the group dropped out in February.
Although small unsecured loans can be easy to obtain, they can be expensive and very difficult to repay. Nationally, the average APR on a payday loan is around 400%. It is compared to personal loan rates that vary from 10% to 28% on average, depending on your credit. Or credit cards, which charged an average interest rate of around 15% interest in February, according to the Federal Reserve of Saint-Louis.
The research carried out by the The Consumer Financial Protection Bureau found that nearly one in four payday loans are borrowed nine or more times. In addition, borrowers take about five months to repay loans and cost them an average of $ 520 in finance charges, Pew Charitable Trusts reports. This is in addition to the original loan amount.
Richard Blocker, a Nebraska resident and bank employee, says he ended up paying $ 525 in fees in eight months for a $ 425 payday loan he took out in 2014 to cover the quote increase. -part of his epilepsy medication. He initially took out a loan of $ 425 and paid $ 75 in fees, but was unable to repay the loan right away.
“I was desperate, so I took out a loan,” Blocker said at Thursday’s press conference. “I don’t want other people to profit because of high cost loans.”
Lenders argue that high rates are necessary because payday loans are risky to finance. But consumer advocates say borrowers often can’t repay these high-cost loans immediately, so they are dragged into a cycle of borrowing and accumulating finance charges.
Nebraska’s election measure comes at a time when Americans are increasingly seeking credit. One in three Americans lost income due to coronavirus pandemic, according to Financial Health Network’s Pulse on Financial Health in the United States 2020, a survey of more than 2,000 American adults between April 20 and May 7, 2020.
Among Americans who report losing income, 3% of survey respondents said they had to borrow money using a payday loan, deposit advance, or pawnshop.