Nebraska Joins States Going After the Cash Advance Industry
In Nebraska, the cash advance industry is a thriving one. Companies that lend funds under cash advance terms have been charging excessively high interest rates and operating with few regulations. However, Nebraska is joining states that are going after the cash advance industry.
Nebraska Becomes a Team Player by Targeting the Cash Advance Industry
To go after the cash advance industry, several lawmakers have introduced a new bill, one that caps interest rates at just 36 percent. In this bill, legislators included a provision that will require cash advance loan lenders to offer borrowers more affordable payment options.
Kwit reports that in the state of Nebraska, cash advance loans often feature interest rates that are more than 400 percent. With interest rates this high, consumers are frequently forced to borrow more money to repay the first loan that they withdrew. State Senator Tony Vargas and Senator Lou Ann Linehan introduced Legislative Bill 194 to temper the short-term loan industry.
This bipartisan proposal is intended to protect consumers while continuing to provide them with access to credit. According to lawmakers, the bill would permit cash advance loan lenders to stay in business and remain profitable. Vargas said, “Something to help you gain access to credit should not be getting you further in a cycle of poverty, especially when we’re talking about trying to improve the lives of people all across Nebraska.”
Bill 194 Revisits an Old Proposal
Last year, Senator Kathy Campbell of Lincoln introduced a similar bill, but it did not advance from the legislature’s Banking, Commerce and Insurance Committee mainly due to timing. The session last year was only 60 days long while this year’s session is 90 days.
According to the Omaha World-Herald, Nebraska has more than 150 storefronts that provide payday and cash advance loans. Opponents of last year’s bill were against it because they said that in Nebraska, the payday lending industry is already regulated to prevent consumers from rolling over old loans continuously when they don’t have the funds to repay the debt. Because of this, they believe that the current regulations are enough. Not only do the bill’s critics say that the state’s regulations provide protection, but they also state that they give those who need access to small cash advance loans a place to turn to when no other financial institution will lend them money.
How Will the Proposal Regulate the Cash Advance Loan Industry in Nebraska?
Bill 194 will regulate the cash advance loan industry in the state by setting a maximum amount that cash advance loan lenders can charge for monthly payments. The limit will be 5 percent of a person’s gross monthly income. The bill will also set a maximum for a loan’s permissible charges at 50 percent of the principal balance throughout the life of the loan while maintaining the current loan limit of $500.
Linehan said, “We know they’re needed. It’s not like we want them to close down, but again, we regulate all kinds of things. So, why would you have an outlier?” The Women’s Fund of Omaha and Nebraska Appleseed, which are organizations that advocate for the state’s poor residents, approve of the bill.
James Goddard, the economic justice director for Nebraska Appleseed, said, “This bill will ensure that lenders serve their customers with fair terms like reasonable interest rates and management repayment plans like in our neighboring states.”
Other states have made similar moves against the cash advance online industry. The Nebraska bill is based on one that Colorado passed while South Dakota voted for a cap on the interest rates that short-term loan lenders are able to charge. As in other states, South Dakota voted for the cap to be at 36 percent.
The Consumer Financial Protection Bureau’s Future Appears Dim Under a President Trump
While there is a recent federal movement to regulate the cash advance online loan industry, proposals made by the Consumer Financial Protection Bureau, or CFPB, may not be executed with Donald Trump leading the country.
Fortune reports that Trump vowed to cut business regulations by 75 percent. To do this, he may need to decrease the bureau’s ability to oversee financial institutions. However, since the agency is responsible for collecting approximately $11.8 billion from financial institutions since it was created in 2011, the country’s new president may have trouble justifying his actions.
The $11.8 billion figure essentially gave every affected consumer a refund of $407, impacting about 9 percent of the country’s population. Democratic Senator Elizabeth Warren along with a team of consumer advocates formed the agency in response to reports of dishonest lending practices by the mortgage industry.
What is the CFPB Designed to Do?
The CFPB was established to protect consumers in their dealings with financial providers. Because of this, the agency has made moves to restrain abuses in the auto, student and payday lending industries. A major focus for the CFPB has been on predatory lending practices that target low-income people who are unable to afford to repay the funds that they borrow.
Since its incarnation, Republican legislators have attempted to rein in the bureau based on accusations that the agency is flawed, isn’t accountable to elected officials and is too powerful. Right now, the CFPB receives its funding from the Federal Reserve. Because it does, the agency doesn’t have to report to elected leaders.
Senator Mike Lee and Senator Ben Sasse recently issued a call to replace the agency’s director with a panel made up of several members. The senators would like this panel to be controlled by Congress. Lee said, “Director Richard Cordray has vigorously supported the unconstitutional independence of the CFPB. Considering the damage that the CFPB has done to credit unions and community banks, President Trump should act quickly to remove the director.”
According to rumors, the Trump administration is interested in removing Cordray, but the country’s new president may not be able to fire him legally. With Trump in the White House, the debate about the conflict between consumer and business interests is unlikely to end, meaning that cash advance loan lenders may have reason to cheer.
Nebraska Jumps Onboard the Regulation Train
With states like Nebraska tackling cash advance loan providers, the country may not need regulatory oversight from the CFPB. A number of state legislators are seeing the value of protecting their constituents from the predatory lending practices of the cash advance online loan industry. Time will tell whether the states will finalize these efforts or permit regulation to fall by the wayside. To read more about Nebraska becoming a team player, head to the Personal Money Store.