Payday lenders disappeared from Nebraska after interest rate capped at 36%

cigaretteman

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Nebraska’s payday lenders have all shut down in the two years since voters capped the interest rate they could charge.
The last handful gave up their delayed deposit services business licenses in December, according to records kept by the Nebraska Department of Banking and Finance.
Just six months earlier, there had been 19 such businesses. That, in turn, was down from the 65 businesses licensed on June 30, 2020, not long before Nebraskans passed a ballot measure limiting the businesses to charging 36% annual interest. The measure passed with more than 80% support.


Former state Sen. Al Davis of Hyannis, a leader with Nebraskans for Responsible Lending, which pushed the ballot measure, offered only mock sympathy about the industry’s disappearance from Nebraska.

“Isn’t that a shame!” he said, adding: “They portrayed themselves as Good Samaritans helping people out, but they were anything but.”
Davis said he had not anticipated all of the payday lenders would close, although he did expect that the numbers of such businesses would drop significantly. He noted that industry officials had predicted before the 2020 vote that some lenders would likely hang on.
On the other side, Ed D’Alessio, executive director of INFiN, a national trade association representing delayed deposit businesses, said the closures were predictable, based on the experience of other states that have imposed similar rate caps.


“Nebraska’s 36% rate cap on delayed deposit loans was never about consumer protection,” he said. “It was about activists’ thinly veiled desire to eliminate a regulated service valued by many.
“But Nebraskans’ need for credit did not go away. Instead, they have been left with fewer options for managing their financial obligations,” D’Alessio said. “As in other states, Nebraska stands likely to learn the hard way that illegal lenders flourish under restrictive, arbitrary, and antiquated rate caps, with little in the way of consumer protections.”


Payday loans, also known as cash advances, check advances or delayed deposit loans, are a type of short-term, high-cost borrowing that people use to get small amounts of immediate cash.

The lenders typically charge a 15% fee, rather than traditional interest, for a short time period. For example, a customer could write a $100 check dated two weeks into the future, and the lender would give that person $85 cash. When translated into an annual interest rate, the results can be startling.

A state report showed that payday borrowers in Nebraska ended up paying an average of 405% annual rate in 2019. The 1994 state law authorizing payday lenders in Nebraska exempted them from the general 16% cap on interest rates.
As a result, borrowers can end up in a spiral of debt, in which they pay hundreds or thousands of dollars in fees over time and fall further and further behind financially. Some lose bank accounts or even end up in bankruptcy.

Reports from the state banking department showed that about 50,000 people took out payday loans in Nebraska in 2019. The average loan was for $362 and the average person got 10 loans over the course of the year.


The coalition that petitioned to put the rate cap on the ballot and pushed for its passage included several organizations that work with or advocate for low-income Nebraska families, children and older people — the groups most likely to be affected by payday loan debt.

In response, industry representatives argued that the cap would drive most, if not all, payday lenders out of business and leave customers without good alternatives when they need money.
Kent Rogert, a lobbyist for the payday lenders, said the 36% cap meant those lenders could only make about $1.38 per $100 loaned, not enough to survive in a business that sees up to 40% of loans go into default.

“The amount of money you’d make is less than what it would cost to process those transactions,” he said. “You can’t pay the light bill for that.”
Rogert noted that some former delayed deposit businesses may still be open to provide other services, such as cashing paychecks for a fee. He said he doesn’t know what former customers are doing now if they need quick cash.

But a 2017 report from the Center for Responsible Lending said research in other states found that people turned to less costly means of getting money when the payday lending industry shuts down. Those include borrowing from family and friends, getting advances on credit cards, cutting back on expenses and dipping into savings.


Patricia Herstein, general counsel for the Nebraska banking department, cited some other options. She said some people may be using installment loan companies, which are allowed to charge up to 24% interest on the first $1,000 and 21% after that.
Others may have crossed state lines to find payday lenders in Iowa or other states. Some have turned to online lenders, which typically charge very high rates and are not regulated by the state. Herstein said the state agency has fielded some complaints about the online entities and reached out to them with mixed success.
She and James Goddard, program senior director for Nebraska Appleseed, another group that backed the ballot measure, said more credit unions in Nebraska have been offering small-dollar loans.

In Omaha, the Economic Empowerment Center, which does business as Lending Link Credit Solutions, offers another option. Executive Director Daniel Padilla said the nonprofit was created with support from local foundations to provide an alternative to payday lenders.

Lending Link provides small-dollar loans, typically between $500 and $2,500, at 5% interest with flexibility on payment schedules. Padilla said lending decisions are based on character and are done along with financial coaching.
He said the organization has gone from making 40 to 70 loans monthly in the beginning to doing 120 to 125 monthly. He said they could do more if they could raise additional support for expansion.
So far, Goddard said, Nebraskans needing money seem to be finding ways. He said Appleseed has not heard from people in the community saying they are struggling to find alternatives, not like they heard from people who were struggling after taking out payday loans.
“It’s a harmful product that trapped people in a cycle of debt,” he said.

 
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dgordo

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Tells you exactly how terrible a credit risk these customers are.

most payday loans have little risk because of the way they are set up. If your paycheck is going to be $100 they will give you $60 and they automatically get your check deposited in their account.
 

seminole97

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Should be capped even lower. We used to have usury laws in this country. I guess that was before greed became the biggest religion in the USA.
I think interest rates above 1% are irredeemably 'greedy' and should be forbidden.
And if no one wants to loan you capital at such a rate? Well, it's for your own good, and even if it isn't, it makes me feel better knowing I've protected you from your own consumerist impulses and I've thwarted the 'greedy'.

Save! Then you can buy a house or a car with your own money, and avoid feeding the 'greedy'.
 

FAUlty Gator

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Oct 27, 2017
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If you make abortion lending illegal people are just going to go get their abortions loans in alleys by people not qualified to perform abortions lend, creating risk for the patients borrowers who need to have the baby killed the money.
 
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seminole97

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If you make abortion lending illegal people are just going to go get their abortions loans in alleys by people not qualified to perform abortions lend, creating risk for the patients borrowers who need to have the baby killed the money.
'Abortion sharks' probably won't take off as an appellation, but by god it should.
 
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seminole97

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Let me just fix this for you.
Do you think it is still a profitable business, but people just don't want to do it anymore?

Can you imagine how bad the collections are when a 30% interest rate isn't profitable to a lender?

My cousin's husband is pretty entrepreneurial. Owned lots of different businesses, sole proprietor or small partnerships. Cabinetry, flipping houses, etc. until he decided to spend weekends flying from Missouri to South Carolina to gain hours flying skydivers all day long so he could qualify for his current gig, private jet pilot for a group of doctors.
I say all this to point out the dude is willing to hustle. For a while he ran a title loan shop. Mos Eisely doesn't hold a candle to the scum and villainy that come into a title loan business. He got out of it because it wasn't worth the hassle for the return.
 
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Moral

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Do you think it is still a profitable business, but people just don't want to do it anymore?

Can you imagine how bad the collections are when a 30% interest rate isn't profitable to a lender?

My cousin's husband is pretty entrepreneurial. Owned lots of different businesses, sole proprietor or small partnerships. Cabinetry, flipping houses, etc. until he decided to spend weekends flying from Missouri to South Carolina to gain hours flying skydivers all day long so he could qualify for his current gig, private jet pilot for a group of doctors.
I say all this to point out the dude is willing to hustle. For a while he ran a title loan shop. Mos Eisely doesn't hold a candle to the scum and villainy that come into a title loan business. He got out of it because it wasn't worth the hassle for the return.

Before the change the average payday loan interest in Nebraska was 404%. Those people do not need those loans, and good on Nebraska for capping them because they are just predatory. Granted, I understand there is math involved on making them profitable for the capitalists, but I don’t view it in that lens because I am not much of a capitalist.
 
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CarolinaHawkeye

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"Interest" is a general term that can refer to any percentage fee charged by a lender for his services, regardless of whether it is usurious. Usury, on the other hand, is a specific type of interest that isn't fair to the borrower.

The Old Testament authority - Exodus 22:25, Leviticus 25:35, and Deuteronomy 20:19 - does not constitute a blanket ban on interest-taking, but condemns taking interest from the poor, and within the Jewish community. The taking of interest was forbidden to clerics from AD 314.

For pithy biblical guidance on the question of lending and borrowing, we turn to Prov 22:7: “The rich rules over the poor, and the borrower is slave of the lender.”2 Though many read the proverb as an obvious financial caution to would-be borrowers, it should also be heard as a warning to enslaving lenders and those ...A
 

seminole97

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Before the change the average payday loan interest in Nebraska was 404%. Those people do not need those loans,
It must be amazing knowing everything and everyone's situation and what is best for them. How does it feel?
Next to god, no?

If a single mom needs to replace the starter on her car so she can get her kid to school and go to work, thank god she can't get a loan anymore to cover that situation, amirite? She can use the money she saves on the loan interest to buy a Tesla, then she won't need a starter for her POS car. Win-win!
 

NoleinATL

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Oct 29, 2006
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I am generally against government intervention to "protect" a person from how they choose to spend their money, it is theirs after all and if they want to make terrible decisions, that is their right.

But those payday lenders are a vicious cycle for customers to get into and often they seemingly can not ever get themselves out because of the structure. There was one of those places near an office building I was at for a consulting job that lasted 6 months. The first month I was there all these people lined up at a place across the street at 8 am. I asked and was told they were paying off loans. The next day the same people were lined up and I was told they were there to borrow back their check. I knew what a payday loan was, but didn't know the ins and outs, and was told the people lined up so they could be first to pay off because they had to wait 24 hours to reborrow. The scene always hit me as sad, as it was 90+% elderly people, some with wheelchairs or walkers with a "caretaker" along for the ride.

anyways long story short, will not shed a tear for those types of companies being forced out of business as they are predatory, even if they do offer some borrowers a brief moment of relief.
 

unsubstantiated

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Oct 21, 2004
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Do you think it is still a profitable business, but people just don't want to do it anymore?

Can you imagine how bad the collections are when a 30% interest rate isn't profitable to a lender?

My cousin's husband is pretty entrepreneurial. Owned lots of different businesses, sole proprietor or small partnerships. Cabinetry, flipping houses, etc. until he decided to spend weekends flying from Missouri to South Carolina to gain hours flying skydivers all day long so he could qualify for his current gig, private jet pilot for a group of doctors.
I say all this to point out the dude is willing to hustle. For a while he ran a title loan shop. Mos Eisely doesn't hold a candle to the scum and villainy that come into a title loan business. He got out of it because it wasn't worth the hassle for the return.
You think they have to go out and collect these loans?
 

Moral

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It must be amazing knowing everything and everyone's situation and what is best for them. How does it feel?
Next to god, no?

If a single mom needs to replace the starter on her car so she can get her kid to school and go to work, thank god she can't get a loan anymore to cover that situation, amirite? She can use the money she saves on the loan interest to buy a Tesla, then she won't need a starter for her POS car. Win-win!

Lol you are such a tool.
 

desihawk

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this is an example where fittingly the devil is in the details. i've always thought that payday lenders should be extincted as well...until i read op's article. ok 15 bucks interest on $100 for 2-weeks works out to an astronomical sum when extrapolated over a year but i can see why someone poor could benefit from such a scheme and how $1.80 in interest would put the shark out of business as well. hopefully a better business model will emerge and take their place and prove that the market does work...
 

joelbc1

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you can’t always get what you want!
My observation regarding “pay day loan” offices here in DSM is that they are located close to where Central Euro and Latin immigrants reside and work. But then, many here believe I am just another racist making another racist statement.
This is another “irony” I find in my native state....Apparently “usury” is an Iowa Value that we just won’t talk about.
 

tarheelbybirth

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Apr 17, 2003
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NC just flatly outlawed payday lenders years ago. They lined the streets around Ft. Bragg and Camp Lejuene. Now it's back to strip joints. ;)
 
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seminole97

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Lol you are such a tool.
LOL, says the guy who thinks he’s protecting people from themselves by taking away from them an option he doesn’t even use himself.

Shame you can’t recognize there are situations even worse than having to borrow money expensively - that’s needing to borrow money and not being able to at all because some moral busybody knows best for you.
 

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