Nebraskans
for Responsible Lending announced this week that they will begin gathering
signatures to reduce the amount that payday lenders may charge to a maximum
annual interest rate of 36 percent. For loans with higher rates made in
violation of this rate cap, the payday lenders would be banned from collecting
principal, interest, or other charges.
Currently,
payday lenders in Nebraska, also known as delayed deposit lenders, can charge
predatory rates with an average annual percentage rate (APR) of 404 percent and
in some cases as high as 461 percent. To put this in context, this means
families who need a couple hundred dollars can end up trapped in a vicious
cycle of debt they cannot break free from. The Department of Defense and
Congress have already imposed a 36 percent rate cap on interest rates for
active-duty military because they know that payday lenders often target
military communities. This measure would ensure that Nebraska’s 150,000
veterans and all families have that same reasonable protection.
Payday
lending has also been shown to make racial inequalities worse. These lenders
say they provide access to credit and cash when needed, but what they really
provide is unmanageable debt. The consequences fall especially hard on
communities of color where payday lending stores are located in higher numbers
than in other neighborhoods, even when you adjust for income. It becomes incredibly
hard for minority families to build wealth, save for the future, or have a
safety net because dollars are systematically drained away. Payday loans burden Americans with more than $4 billion
in fees each year in the 34 states that allow staggering triple-digit interest
rate payday loans. That adds up to $28,173,908 from Nebraskans alone.
Additionally, coercive collection practices, including arrests and threats of arrest, are more prevalent in the case of payday loans. Without meaningful regulation and enforcement, the use of arrest warrants is rampant and underlies a range of coercive and abusive collection practices. Even when debt collectors cannot possibly secure criminal prosecution or jailing for an unpaid debt, some have falsely threatened debtors with such sanctions when collecting payday loans.
Consumers in Nebraska have also been arrested for failure to appear in court over unpaid private debt judgments, including payday loans. In 2016, Nebraska judges issued an alarmingly high 548 warrants in debt collection suits. A judge may preemptively issue a warrant for the arrest and jailing of the debtor if “there is danger of the debtor leaving the state or concealing himself to avoid examination.”
Sixteen
states and the District of Columbia have already enacted rate caps of about 36
percent. Payday lending is a multi-billion-dollar industry that exploits the
most financially fragile. This initiative would help end predatory lending
practices and ensure that consumer loans are fair and reasonable.
Paid for by American
Civil Liberties Union, Inc., 125 Broad Street, New York, NY 10004