Over the years, much has been written and said about the payday lending industry. The industry has been widely criticized by consumer advocacy organizations and politicians. The Consumer Financial Protection Bureau has made it their priority to file new, burdensome, job-killing regulation impacting this industry.
Florida has had robust laws and regulatory oversight in place for more than 15 years to ensure Floridians are protected and have access to credit and cash when emergencies happen. Consumer advocacy organizations have used misleading and questionable math to create confusion about payday lending products; and have done little to demonstrate that they understand that Americans use these services and deserve financial choice.
While a robust dialogue about all forms of financial products is critical and regulation to protect consumers is necessary, removing a source of credit for hard-working Americans and eliminating choice should not be the focus of any federal agency. Those struggling the most in desperate situations will search for less reputable, unregulated sources of credit, and be devastated by high costs or unavailable loans.
Consumer advocates claim that payday loan borrowers are charged interest at an annual percentage rate of nearly 400%. In Florida, we stick with the facts. The average Florida payday loan is $400, and Florida law caps the total payday loan at $500.
If payday loan borrowers were charged 400% APR, they would have to pay $1,600 in interest annually to incur 400% interest charges. Under Florida law, the charge for a payday loan is 10%, plus up to a $5 fee. Thus, the average cost of a $400 payday loan in Florida is $45 (10% + up to $5 fee).
The new rules released by the CFPB claim that it is an unfair and abusive practice for a lender to make a short-term or longer-term balloon payment loan without reasonably determining an individual’s ability to repay the loan. To comply with these new burdensome rules, each lender will be forced to meet the “ability to repay” requirement and determine that a consumer can make the loan payment and be able to meet basic living and other payments without having to re-borrow within the next 30 days. The requirement may sound simple, but when you consider the time and complicated layers it adds to a lender's business process, it’s not simple at all.
Lenders must verify net monthly income, monthly debt obligations using a national credit report, and monthly housing costs using a national consumer report or written consumer statement. They must also forecast a reasonable amount for basic living expenses, and, based on the above, determine the borrower’s ability to repay.
The time and human resources required to perform this analysis, process additional paperwork and comply with these new federal regulations will grossly outweigh profit. With no profit, businesses will no longer be able to operate and will close their doors.
The new CFPB regulations impacting payday loans would have a devastating effect in Florida. With approximately 1,000 payday loan locations across the state, it is estimated that the industry employs more than 4,000 people. Florida could lose as many as 7,500 jobs, and more than 900,000 Floridians who take at least one payday loan annually would have no place to quickly access cash in an emergency.
Congress must act now to repeal these burdensome rules to save jobs and protect Americans.
Thankfully, Congressman Dennis Ross, R-Fla., has led a bipartisan effort to propose House Joint Resolution 122. Ross’ bill is cosponsored by Reps. Alcee Hastings, D-Fla., Tom Graves, R-Ga., Henry Cuellar, D-Texas, Steve Stivers, R-Ohio, and Collin Peterson, D-Minn.
I applaud their efforts to rein in this Obama-era creation and stop the overreaching CFPB from further limiting consumer choice and access to credit.