To channel Thomas Frank who famously asked “What’s the matter with Kansas?” — I have the same question for the Sunshine State.
What’s the matter with Florida?
Or, more specifically, what’s the matter with the (almost) entire Florida Congressional Delegation — 26 of 27 members, Democrat and Republican — who recently penned a letter shilling for the interests of the predatory payday loan industry.
In a April 28 letter to Consumer Financial Protection Bureau director Richard Cordray, the Florida Congressional Delegation (minus Rep. Tom Rooney) outlined concerns about the CFPB’s proposed federal regulations to end abusive practices in the 46-billion-dollar payday loan industry.
The independent federal agency is seeking debt trap protection and debt trap prevention for the borrowers of short-term, small-dollar loans. The CFPB’s blueprint of proposed regulations would require payday lenders to ensure borrowers could reasonably be expected to pay off the loan as well as meet other living expenses, such as rent and groceries. The regulations would also force lenders to provide affordable repayment options and grant additional protections, including capping the number of times a borrower can roll over the debt.
Sounds like a laudable goal. Yet, the Florida Congressional Delegation isn’t so sure.
“The payday loan statute in our home state of Florida is among the most progressive and effective in the nation,” they wrote to Cordray. “Indeed, it has become a national example of the successful compromise between strong consumer protection and increased access to credit.”
“In light of Florida’s success in this regard…we implore you to include the Florida model as a third method.”
Just one week later, a diverse group of 20 consumer advocacy organizations fired back, rebuffing the claims of the delegation in a letter to Cordray.
“We disagree strongly with any perception on your part that the present Florida payday loan regulatory structure should be held out as a model or that Florida’s regulatory structure provides Florida consumers with a loan that protects them from economic harm,” said the consumer groups.
The letter noted that Florida’s purportedly progressive and effective statute to regulate payday loans was passed 14 years ago in an attempt to limit the industry’s preying on low-income consumers.
“At that time, the payday loan industry was willing to agree to what they referred to as ‘best practices’ in order to obtain the holy grail — extremely high fees and costs,” wrote the consumer groups, noting that while Florida’s usury rate is 18 percent, payday lenders in the Sunshine State are allowed to charge 20 times the criminal usury rate — up to 390 percent APR.
“We look to our United States House delegation to seek additional protections for Florida consumers, not settle for the status quo that keeps the low-income borrower in a debt trap,” the groups continued. “Please reconsider your position and support marketplace equality rather than special interests.”
Florida’s payday loan statute comprised of “best practices” are really and truly “well-disguised loopholes” for usurious loans, according to the Florida Alliance for Consumer Protection. The 2001 statute touted by the delegation limited borrowers to one loan at a time. However, a 2012 study found that 85 percent of payday loans are issued to borrowers trapped in seven or more loans per year.
Additionally, “churned loans” — those renewed within two weeks of a previous loan — make up 76 percent of payday loan volume in Florida, according to a 2009 study. Moreover, from June 2011 to May 2012, low-to-moderate income Floridians paid more than 300 million in fees to payday lenders, and payday lending during the roughly same time period cost the Florida economy, which was still recovering from the Great Recession, more than $76 million in economic activity.
Facts matter.
Yet even Rep. Alan Grayson, a progressive stalwart and Democratic Senate hopeful in 2016, characterized Florida’s payday loan regulations as “a strong state system” in an interview with the Miami Herald.
The shilling for the payday loan industry from Florida politicians has not stopped. Former Congressman Kendrick Meek, the Democratic nominee who lost the 2010 Senate election to Marco Rubio, asserted in a July 28 column in the Washington Times that Florida’s regulations on payday loans “has effectively provided a happy medium balancing consumer protection with the need for short-term cash”
“Florida’s groundbreaking reform of short-term lending has provided a safe solution for millions of people for a decade and a half, and I believe it can and should serve as an effective model for any national regulations,” Meek concluded.
Note: Meek, who was once a strong proponent of payday loan reform, has in recent years been a top recipient of campaign contributions from the payday industry, ranking as the top recipient during the 2010 election cycle.
According to a new study from Howard University, payday lenders target and have a disproportionate impact on low-income and minority communities. In 2014, more than 1,000 of Florida’s 1,200-plus payday storefronts were located in low-income communities and approximately 1,200 payday stores were located in areas whose population was more than 30 percent African-American and up to 60 percent Hispanic.
Three hundred million in fees alone. A net loss of over $76 million in economic activity. A 73 percent increase in borrowers of the age of 65 from 2005 to 2011. And staggering harm being caused to vulnerable communities.
That’s surely no nationwide model for effective reform.
We need strong (not weak) federal regulations from the Consumer Federal Protection Bureau to combat predatory payday lending.