A new payday loan bill could save the industry. Or make it more profitable.

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For critics of payday lenders, a bill in the legislature that would result in larger loans and higher fees is a giveaway for a predatory industry.

At a glance, they might be right. Floridians, mostly in poor neighborhoods, took out 7.7 million 12-month payday loans in 2016 and 2017. And nearly a third of all customers took out at least 12 loans that year, a sign clear of the “debt trap” that lenders take advantage of, critics say.

But the bill is navigating through the Legislature with bipartisan support.

Which give?

In short, the bill is an effort to help a powerful industry that may – or may not – see major changes in the years to come.

Payday lenders fear that a new federal rule will almost eliminate their main product: the simple, small, single payment loan. In Florida, pay a lender $ 50 and they will give you a loan of $ 500. Within 30 days, the lender withdraws the $ 550 from your bank account. All you need is a pay stub to show you have a stable job.

But the Consumer Financial Protection Bureau proposed a rule last year that could restrict lending to people who have already taken out six loans in a year. Given the number of people who are recurring borrowers, the Bureau believes that the rule could eliminate up to 62% of current payday loans.

“It might as well be 100%,” said Ian MacKechnie, founder and CEO of Tampa-based payday lender Amscot. “No one will be there. It is bankrupting us.”

To get around the rule, lenders want to offer a second product: a loan of up to $ 1,000, payable in installments within 60 to 90 days. It does, however, require statewide change. Florida caps these loans at $ 500.

The new invoice would also result in higher fees for customers. Instead of paying twice the $ 50 maximum for two $ 500 loans, the new fees would be increase to $ 216 for a single loan of $ 1,000.

State Senator Rob Bradley, R-Fleming Island, one of the co-sponsors of the bill, called it “a very important bill this session.”

“Our fellow Floridians are counting on this product,” Bradley said. “And there are 10,000 people working in this industry whose jobs would be at risk if we did not respond to the actions of the federal government.”

He’s backed by Senate Democratic Minority Leader, co-sponsor Oscar Braynon, D-Miami, who compared payday loan stores to hospitals – you don’t want to use them until you have to. .

“Some people have no choice,” he said.

But the changes might not happen. The new CFPB chief said that the Bureau is now “reconsider” the implementation of the rule, which would come into effect in August 2019.

The industry is not counting on it, however.

“As an industry, we assume this is a bill that will go into effect,” MacKechnie said. “All we are doing is asking our legislature to change our law to allow us to continue to provide credit in a way that will continue to work.”

Despite the reputation of payday loans, economists have been surprisingly divided as to whether they are good or bad. They provide an essential service in poor communities which are underserved by banks, which do not offer short-term credit.

But federal officials viewed them as predatory and destructive to some people. In 2006, Congress passed a law capping the interest rates on loans to active duty military personnel at 36% per annum, after a Pentagon study found that the stress of the payday loans department affected “military readiness”.

This 36% annual percentage rate effectively eliminates payday loans which, if spread over one year, would have annual rates above 200% under the new bill.

Whether they are just good or bad is not the right question, according to Mehrsa Baradaran, Associate Dean for Strategic Initiatives at the University of Georgia Law School and author of the book, How do the other half-banks.

“Is it wrong to take out any of these loans? I think the answer is yes,” she said. “If you can get this money from another source, you better avoid them.”

But she said some people are stuck with no other option.

“It could be the rational choice. It could be the only choice,” she said. “But that doesn’t put you in a better position.”

The concern is not that borrowers fail to repay their loans. Less than 2% of clients default, according to data from the Florida Office of Financial Regulation. Florida allows a 60-day grace period at no additional cost and free credit counseling for people who cannot pay their loans on time, and state law does not allow people to take out multiple loans at the same time. time.

Rather, the concern is that customers fall into a trap, where they find they have to regularly rely on loans – and pay fees – to get by.

“I am a religious leader who has seen firsthand the damage caused by these types of loans,” Reverend Rachel Gunter Shapard told lawmakers last week. “We believe this is based on exploiting our neighbors when they are vulnerable.”

State data shows that the heavy users of payday loans are the cash cow of the industry. The 28 percent of people who receive at least 12 loans per year account for 56 percent of all payday loan transactions.

MacKechnie said if the CFPB does not enforce its rule and the Florida bill passes, the new $ 1,000 loans could represent about 30% of the company’s loans.

Alice Vickers, director of the Florida Alliance for Consumer Protection, told lawmakers they shouldn’t take the risk.

“We are backing down here,” she said. “We are creating a product that will cost the borrower even more than what is legislated today.”

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