The Florida NAACP strongly opposes a bill that payday lenders are pushing through the state Legislature with the support of some lawmakers who may not understand the damage that predatory loans do to families and communities.
Payday lenders want to add a new product to a state already teeming with loans that are designed to look like they provide short-term relief, but that, instead, systematically strip wealth from low-wealth communities.
SB 920/HB 857 allows payday lenders to charge up to 208 percent APR for loans up to $1,000. This is twice the size of the loans they can currently make. The proposal would strengthen payday lenders’ ability to trap their customers in debt, rather than strengthen the reform Florida needs in this area.
The terms of 60-90 days that would be allowed are also no improvement. Borrowers in other states that permit this type of longer-term predatory lending suffer the same inability to pay off the loans and move into a better situation as they do with the traditional two-week terms. This is a clear step backward, not forward.
What would truly disrupt the business model of the payday lenders, who rely on trapped customers rather than happy customers for their bread and butter, is the 30 percent rate cap sponsored by two Florida lawmakers — who happen to be Republican. They understand that responsible lending should not be a partisan issue.
Florida desperately needs real reform. A 2001 law that people hoped would resolve the problem was ineffective. Payday lenders are still devastating our communities by up to $311 million per year, charging an average 278 percent annual interest for loans that produce 83 percent of revenue to these companies from borrowers with seven or more loans per year.
Far from providing access to credit for emergencies, as these companies deceitfully claim they do, they have developed a web that entangles not just the occasional customer but also the typical customer. Rather than receiving help through a crisis, payday borrowers report a worsening of their financial situations after getting caught in the debt trap. They have increasing trouble paying living expenses as time goes on. Some people lose their bank accounts after repeat overdrafts, forced by the unmanageable terms of payday loans. After doing everything they can to get through a tough situation, some folks even end up having to file bankruptcy. Those who say with a straight face that these loans provide a valuable service have just not done their homework.
For people of color, who have a fraction of the wealth, or net worth, of white families, this type of predatory lending widens that gap and make it all that much harder for people of color to catch up with their white counterparts. Payday lenders actually set up in those communities more frequently, according to research that controls for income. In other words, a black neighborhood and a white neighborhood with the same levels of income will not also have the same number of payday loan stores. Look for more stores on the corners of the neighborhoods that are home to people of color. This means more access to their dollars through harmful payday loan traps.
While this disproportionate impact is real, payday lending harms people regardless of their race, creed or color. In Florida, older people are being affected as well. AARP is among a diverse coalition of faith groups, veterans groups and advocates for low-income people that has come together to oppose this bill and to work on true reform of a product that should never have been allowed to take root in our state.
Nationally, the NAACP has had strong and steady opposition to predatory lending in all forms, including payday lending. At its 2016 national convention, the NAACP passed a resolution noting that, “High-cost, small-dollar lenders make loans that are structured to last for months or years at these high costs, with continual refinancing and high defaults,” and many high-cost, small-dollar lenders do not assess a borrower’s ability to repay a loan, considering both income and expenses. In fact, many of these lenders intentionally rely on these loans’ unaffordability to extract huge profits from borrowers stuck in the debt trap cycle.
The NAACP “strongly condemns abusive, predatory, wealth-stripping lending practices in whatever form and wherever they exist.”
We call on Florida legislators to do the same.
Adora Obi Nweze is president of the NAACP Florida State Conference and on the board of the National NAACP. She is a past president of the Miami-Dade branch.