Sen. Kathy Campbell of Lincoln has proposed reasonable restrictions on the most extreme of the predatory practices used by payday lenders, while allowing them to stay in business.
The Legislature could help Nebraskans work their way out of poverty by putting the restrictions into law.
Passing LB1036 would require payday lenders to allow borrowers to pay back loans over time, rather than in a lump-sum payment that comes due after two weeks.
Current law allows lenders to charge $75 for a two-week $500 loan. That’s equivalent to an average annual percentage rate of 460 percent. Campbell’s bill would lower the $75 fee to about $10.
People who go to payday lenders to get quick cash typically write a check for, say $100, to get $85 from the lender. If the borrower fails to come in with $100 to pay for the loan in two weeks, the lender cashes the check.
Glenda Wood of Bellevue told state senators that when she and her husband took out a $500 payday loan for tires they “kind of got trapped in this cycle of basically just renewing that same loan over and over again, just paying the fees and not paying back the loan itself.”
Payday lenders and their supporters contend that they are serving consumers who traditional lenders won’t help. “Our customers really have nowhere else to go,” said Brad Hill, a payday lender and president of Nebraska Financial Services.
Perhaps Hill and his colleagues are right.
But when a similar law was passed in Colorado, payday lenders still were able to turn a profit by becoming more efficient, according to Nick Bourke, director of small dollar loan projects for Pew Charitable Trusts. Pew says that about half of the payday lenders went out of business under the 2010 law. The remaining payday lenders serve about twice as many customers at each location. Ninety-one percent of residents still live within 20 miles of a payday lender.
Campbell said her bills came out discussions by the Legislature’s Intergenerational Poverty Task Force.
Pew says that Colorado residents now spend about 42 percent less a year on payday loans.
That means they have more money for the necessities of life, like food, rent and utilities.
Campbell’s bill would remove some of the obstacles that can keep families mired in poverty as they live paycheck to paycheck -- without unduly regulating the market place. Legislators should enact it into law.