Nebraska voters who vote for the general election by November 3 will decide the fate of a proposal that would limit the amount of money “payday lenders” could ask borrowers.
The voting question, known as Initiative Measure 428, would amend state law to limit the amount that state-licensed cash advance companies could charge and would exempt borrowers from repaying loans that were found to be against the Violated the upper limit.
The proposal would also prohibit lenders from evading the new restriction by doing business through the mail, phone, internet, or other electronic means, regardless of whether they have a physical business location in Nebraska.
“Payday Lenders” as they are commonly known are regulated by the State Department of Banking and Insurance in accordance with the Nebraska Delayed Deposit Services Licensing Act, approved by the state legislature in 1994.
State law already limits the amount that such lenders can charge – not in the form of interest at a certain rate, but in the form of fees to a certain amount. The current fee cap is $ 15 for every $ 100 borrowed, or the prorated equivalent for lower loan amounts.
The maximum amount for a delayed deposit loan in Nebraska is $ 500 and the maximum loan term is 34 days. Upon submission of proof of income, borrowers secure such a loan with a check made out to the lender, which the lender holds until a certain date within the 34-day window – in many cases likely after the borrower has received their next paycheck.
A lender cannot hold more than two checks from a borrower at a time, and those two checks combined cannot exceed $ 500.
A borrower who does not have the funds to pay his check held by a lender on the day it is cashed more than once a year may enter into an advanced payment schedule with that lender. The lender cannot charge the borrower any interest or additional fees, but if the borrower misses any of the subsequent payments, the lender can expedite the repayment schedule and, if necessary, take action to recover the balance.
According to information from the Nebraska Secretary of State Office, proponents of the Measure 428 initiative claim that current fee caps on the short-term, relatively low-cost loans allow lenders to charge an interest rate that is effectively annualized in excess of 400%.
According to a 2019 annual report on delayed payment services from the Nebraska Department of Banks and Treasury, the average contracted annual interest rate was listed as 405%.
Such loan fees were criticized by supporters of the current election initiative as exorbitant and unfair and described as “usury”. They argue that such expensive payday loans can drive borrowers into an endless debt cycle.
In 2019, a total of 507,040 cash advance transactions were reported nationwide, with an average credit size of $ 362, reported the Department of Banking and Finance.
The Delayed Deposit Services Licensing Act already prohibits payday lenders in Nebraska from charging such high fees from U.S. military personnel on active duty and their spouses or loved ones. This ban is in line with the Federal Military Loans Act, which limits late deposit borrowing costs for active military families to the equivalent of 36% annualized interest.
Nebraskans for Responsible Lending, a coalition of advocacy groups that includes the National Sixteen Thirty Fund and the Nebraska ACLU, has reportedly collected more than 120,000 petition signatures to put the payday loan measure on the ballot this year.
According to the election information page ballotpedia.org, payday loan is legal in 37 states, 29 of which do not impose any restrictions on annualized interest rates. South Dakota, Colorado, and Montana have already capped payday loan fees to 36% APR due to voting initiatives.
Brian Hill, a representative of the Nebraska Financial Service Association, a lobby group that advocates the state’s cash advance business, was quoted in state media against the 428 initiative.
Brian Chaney, an Omaha man who reportedly worked in the cash settlement industry, was listed as a plaintiff in two unsuccessful lawsuits contesting the 428 initiative vote question.
One lawsuit challenged the use of the unofficial term “payday lender” in the official language. The others cited complaints from some of the petition’s signatories that the circulators did not properly explain the proposal to them.
Chaney lost the first case in the Nebraska Supreme Court. The second was dismissed by a Lancaster County District Court judge who ruled that the complaining signatories missed the deadline to remove their names from the petition.
A summary of the arguments for and against the Measure 428 initiative, posted on the Nebraska Secretary of State Office’s website, states that opponents of the nomination claim that the state’s delayed deposit industry provides the necessary access to short-term credit for Nebraskans for all Income brackets who may face an unexpected financial crisis related to medical bills, car repairs, or other contingency.
Opponents argue that the $ 15 transaction fee per $ 100 borrowed is less than what borrowers would pay for bank overdrafts, utility reconnect fees, or undeliverable checks, and that the mathematical conversion of the fee from $ 15 in an annualized interest rate equivalent gives a distorted picture of the situation.
A transaction fee capped at 36% APR would add up to just $ 1.38 per $ 100, opponents claim – and such a cap would force payday lenders and their services out of the state.
“In the states where this law was passed, complaints against unregulated internet lenders soared, as did borrowing costs and personal hardship,” the opposition summary said.