Payday loans are both a blessing and curse for the people who need them, providing money quickly but at an awfully high cost. A bill moving through the Florida Legislature with bipartisan support would expand payday lending and could make it even more expensive for borrowers. There are new and better options for people who can't qualify for traditional bank loans than bolstering an industry that profits from poor Floridians desperate for cash.
Payday lenders such as Tampa-based Amscot sought a change in state law in anticipation of Obama-era federal rules regarding payday loans that are scheduled to take effect in August 2019. One federal rule would require lenders to verify a borrower's ability to repay loans with terms of less than 45 days, which Amscot claims could put it out of business. The Trump administration has signaled that it is likely to reverse the rule later this year, but payday lending is big business in Florida and lenders want insurance.
They got it in the form of SB 920 and HB 857, which would create a loan with a 60- to 90-day term, for up to $1,000. Now payday loans are capped at $500 and must be paid off in a lump sum in 31 days. The new product, which would circumvent the federal rule, would charge interest in installments every two weeks. Total hit to the consumer: $215 in interest and fees. By comparison, someone who took out back-to-back $500 loans would pay $110 in interest and fees. This proposal, which has sailed through several committees with bipartisan support and is ready for consideration by the full Senate, makes a bad deal even worse.
There's no dispute that short-term loans fill a critical need. For low-income consumers with bad or no credit who do not qualify for conventional credit cards or bank loans, being able to access money quickly to cover bills, pay for a car repair or buy medicine is vital. But high-interest payday loans are not their only option. Credit unions with a federal low-income designation — there are more than 75 throughout Florida — offer payday alternative loans that are specifically structured to avoid the debt traps of traditional payday loans. Interest on loans between $200 and $1,000 is capped at 28 percent. By comparison, payday loan borrowers pay triple-digit interest.
Enterprising startups have taken a wholly new approach, partnering with employers to add short-term loans to their employee benefits packages. The moderate-interest loans come through a traditional bank, with payments taken directly out of the employee's paycheck. And in Tampa Bay, employees of the 54 McDonald's locations owned by Caspers Company have the ability to access 50 percent of their pay from a shift they worked the day before. That means no more waiting the full two-week pay period if a bill is due sooner or an unexpected expense arises. The service, called Instant Pay, charges no fees at all.
Floridians who are vulnerable to the debt traps of payday loans don't need newer, bigger loans that would gobble up more of their money. The federal rule that could create some uncertainty in small-dollar lending is not set to take effect for more than a year, if it does at all. In the meantime, there are innovative ways that low-income consumers can now access more affordable credit. Those efforts should command lawmakers' attention, not a bill that loosens the reins on the payday loan industry.