Payday loan fight turns bipartisan in US as CFPB backs down
Filling a loophole in Georgia’s usury laws that allows auto title lenders to charge interest rates as high as 300% is neither a Democrat nor a Republican problem for State Senator Randy Robertson .
The Republican lawmaker has said that bringing auto title lenders below the state’s 60% interest rate cap, which has effectively kept payday loans from taking hold in the state, is aimed at to help people come out of desperate circumstances.
“I saw the role that poverty played in crime. A lot of people were trapped in generational poverty, ”said Robertson.
The legislation proposed by Robertson is part of a new wave of state-level efforts to restrict payday loans, auto securities and other low-value, short-term, high-cost loans that have emerged as the Trump administration is backing down on federal regulation of these lenders. These efforts are happening in red states, like Nebraska, as well as blue-prone ones, like Virginia.
“If the Consumer Financial Protection Bureau isn’t doing its job, someone has to do it,” said Kelly Griffith, executive director of the Southwest Center for Economic Integrity in Arizona, which spearheaded a failed effort during a ballot initiative of 2020 to close an automatic title loophole in that state.
Consumer advocates and lawmakers calling for state and federal rate caps have targeted 36% to bring it into line with the Military Loan Act, which caps the rate on loans to active duty members.
“There is very strong bipartisan support to end the cycle of the debt trap caused by payday loans,” said Lisa Stifler, director of state policy at the Center for Responsible Lending, who is involved in several efforts. at the state level to restrict payday loans.
Since 2010, three states have capped interest rates at 36%, bringing the total number of states that have effectively banned payday loans to 16 plus Washington, DC, while a fourth has chosen to tighten its regulatory regime. .
Arkansas passed a 36% rate cap through a popular ballot in 2010. South Dakota followed suit in 2016, even as Donald Trump handily led the state on the path to victory in the presidential elections.
Colorado voters in 2018 approved a voting measure capping rates at 36%, surpassing legislative caps on payday costs, and auto title lenders could charge who had left the highest rates at an average of 129% .
Ohio limited the rates and fees for payday loans in 2018.
At the federal level, bipartisan legislation was introduced to the House and Senate in November that would set a federal rate cap of 36% for payday loans, in line with current restrictions on loans to members of the armed forces under the MLA.
“If it’s immoral to give this kind of loan to the military now, why is it moral to give it to someone else?” Rep. Glenn Grothman (R-Wis.) Said when the bill was introduced.
At the same time, the CFPB led by Trump-appointed director Kathy Kraninger is removing repayment capacity requirements from a 2017 payday loan rule issued under then-chief Richard Cordray. , who was appointed by President Barack Obama.
“There is always an ebb and flow. Obviously, many consumer groups felt their trump card was the CFPB led by Richard Cordray, who was very militant in his approach, ”said Jamie Fulmer, executive vice president of public affairs at Advance America, l one of the largest payday lenders.
Efforts to limit payday loans come at a cost to consumers, who may not be able to access the cash they need to cover unforeseen expenses, Fulmer said.
“All it does is rob them of the credit they need,” he said.
Virginia has allowed payday lenders and auto title lenders to operate largely unimpeded, resulting in interest rates above 250% and one in eight vehicle title loan borrowers seeing the cars or recaptured trucks, according to October 2019 data from Pew Charitable Trusts.
The Virginia legislature, with its new Democratic majorities, is working to change that.
On February 10, the state Senate passed a law that would place new restrictions on the rates and fees lenders can charge on payday loans and other small loans in a bipartisan vote. The state House of Delegates passed a similar bill in late January.
Once the two houses have reconciled their invoices, HB 789 and S. 421,
Rather than imposing a 36% interest rate cap, Virginia law would cap interest rates on loans between $ 500 and $ 2,500 at 36% plus maintenance fees, with terms on the loans. loans for four to 24 months. The fees would be capped at $ 25 per month, depending on the loan amount.
“We know there are lenders who give very small loans, from $ 300 to larger loans. We know they can make money doing this. So we will keep access to credit, ”said Jay Speer, executive director of the Virginia Poverty Law Center.
Opponents of payday loans in Nebraska have opted for a voting initiative to cap payday loan interest rates at 36% in 2020. Current law allows loans with APRs as high as 459%.
“It’s not really hard to see why having 400% interest rates on loans isn’t good for the economy, families or the state,” said Aubrey Mancuso, executive director of Voices for Children in Nebraska and leader of the polling initiative coalition. .
The Nebraska coalition, Nebraskans for Responsible Lending, began collecting signatures in October with a deadline in July.
The coalition set up a massive field operation with paid signature collectors and funding from across the country, including the American Civil Liberties Union, which donated $ 450,000 in January alone. , according to the group’s most recent campaign finance disclosure.
“Outside money is something that bodes well for them in getting the ballot,” said Paul Landow, a professor at the University of Nebraska-Omaha who studies government and politics in the state.
Fulmer, whose company operates in Nebraska, said the outside money also shows that efforts to curb payday lending are coming from foreigners trying to dictate their views to other people.
“What you are seeing is a lot of people who think they know what’s best for people,” he said.
The industry has already fought legislative restrictions on high-cost loans, Landow said. But he said Nebraska’s populist streak could give rate-cap supporters a chance.
“I think you can clearly make a populist argument for rate caps. If they can play their cards right, I think they can go a long way. It’s going to come down to TV commercials, ”Landow said.
Closing the loopholes
Georgia’s 60% interest rate cap has effectively eliminated payday loans, but auto title products are considered pawn shops rather than loans under state law. This allowed securities lenders to bypass a provision capping interest rates on loans under $ 3,000 at 16%.
“The legal vacuum is really around the term ‘pledged’. This loophole allows auto titles to be pledged, rather than recognizing that they are loans, ”said Berneta Haynes, senior policy director at Georgia Watch, a state-owned consumer group.
Robertson is proposing legislation to close that loophole, citing the federal military loan act’s 36 percent interest rate cap on active duty loans. That’s a big deal in Georgia given the presence of one of the Army’s largest bases, Fort Benning.
Robertson, a former major in the Muscogee County Sheriff’s Office and law enforcement veterinarian for 31 years, said a hearing on the bill was scheduled for February 20. From there, he is convinced that he will be able to involve his colleagues.
The auto titles industry is relatively small and their practices are “out of hand,” said Robertson.
“There are a lot of kids who are trapped in generational poverty who don’t see hope. We have to show this segment of our society that we are here to support them, we are here to help them, ”said Robertson.