Roll­back of lend­ing rule cre­ates vir­tual debt slaves

Orlando Sentinel - - Opinion - By Jerome Don­nelly Re­tired UCF pro­fes­sor Jerome Don­nelly served three terms on the Win­ter Park City Com­mis­sion.

“If you’re con­sid­er­ing tak­ing out a pay­day loan, I’d like to tell you about a great al­ter­na­tive. It’s called ‘Any­thingElse.’ ”

— Sarah Sil­ver­man

A re­cent Sen­tinel col­umn by lend­ing com­pany pres­i­dent Brian Lynn (“Good rid­dance to lend­ing rule that would have hurt many,” May 28) ap­plauds the roll­back of a lend­ing rule de­signed to pre­vent loans at triple-digit in­ter­est rates to peo­ple who can’t af­ford to pay them back.

The now-mori­bund Con­sumer Fi­nan­cial Pro­tec­tion Bureau’s (CFPB) rule was sched­uled to be­gin after giv­ing the af­fected small-loan busi­nesses time to ad­just. With­out the rule, des­per­ate peo­ple who can’t af­ford them will be able to take out loans that can make them vir­tual debt slaves, re­new­ing loans and ac­cu­mu­lat­ing new charges.

While drop­ping a rule de­signed to pro­tect un­wary would-be bor­row­ers is hardly in the public in­ter­est, it cer­tainly serves pay­day lenders — es­pe­cially in a state like Florida, where the leg­is­la­ture al­lows triple-digit in­ter­est rates. Lynn com­plains that by the CFPB’s own es­ti­mate he might lose 70 per­cent of his busi­ness if the rule went into ef­fect. That’s the CFPB’s es­ti­mate of cus­tomers who wouldn’t be able to re­pay.

Lynn thinks the way the re­quire­ments for lenders to de­ter­mine “the abil­ity to re­pay” are un­rea­son­able, but he pro­vides no specifics from the rule. Nor does he men­tion an­other pro­vi­sion that would limit lenders’ ac­cess to bor­row­ers’ bank ac­counts, a prac­tice that cur­rently costs half of the bor­row­ers an av­er­age $185 in over­charges, ac­cord­ing to con­sumer­fi­

Lynn comes across as if he’s just strug­gling to keep a fam­ily busi­ness from the sti­fling rules of a gov­ern­ment bu­reau­cracy, but this is not a “mom and pop” busi­ness. Speedy Cash and Lend­ingBear — Lynn’s loan, pawn, and cash for ti­tle busi­nesses — are spread over five states, with dozens of out­lets.

He claims that Florida al­ready has “strong con­sumer pro­tec­tion” laws cov­er­ing small-loan busi­nesses, though he is silent about the sky-high in­ter­est rate Florida al­lows fringe lenders to charge. Florida law is tricky on stat­ing in­ter­est rates. Florida Code lim­its loan in­ter­est to 30%.

But the pay­day shops are not cov­ered by loan reg­u­la­tion, since theirs are not listed as loans, but as “de­ferred pre­sent­ment trans­ac­tions.” Those “trans­ac­tions” are al­lowed to carry in­ter­est rates of 304%. Bu­reau­cratic gob­bledy­gook, as it is so of­ten, is at the ser­vice of pri­vate-sec­tor spe­cial in­ter­ests and not in op­po­si­tion to busi­ness.

Busi­nesses like pawn shops and pay­day lenders thrive in a cli­mate of poverty. Even be­fore the COVID-19 out­break struck, the econ­omy had been strug­gling to re­cover from the Lesser De­pres­sion of 2008. Ap­prox­i­mately 60 per­cent of Amer­i­cans do not have sav­ings enough to cover their ex­penses for six months. The of­fi­cial “poverty level” in­come is un­re­al­is­ti­cally low and only masks the aw­ful ex­tent of poverty in our coun­try.

Un­doubt­edly, to have ac­cess to quick cash in an emer­gency, even at a sky-high in­ter­est rate, can be a gen­uine ser­vice. Out­ra­geous as that in­ter­est rate may be, it’s ac­cept­able to some who need im­me­di­ate cash to get a car run­ning or to keep the elec­tric­ity from be­ing turned off. Then, it may be worth pay­ing $35 for bor­row­ing $300 un­til the next pay­day.

Yet, 80 per­cent of the loans have to be re-fi­nanced. Most bor­row­ers end up ow­ing more in in­ter­est and fees than the amount they bor­rowed, ac­cord­ing to con­sumer­fi­ A num­ber of other states have bet­ter reme­dies.

The roll­back of the con­sumer pro­tec­tion rule comes at a par­tic­u­larly bad time, since it frees the pay­day lenders to take ad­van­tage of all those un­der­go­ing lay­offs, fur­loughs, and out­right job losses — now added to the mil­lions of Amer­i­cans who are liv­ing in poverty. If those with­out an abil­ity to re­pay are al­lowed to ac­cu­mu­late debt, they will be the most dam­aged, though on a scale large enough to dam­age even more our al­ready hurt­ing econ­omy.

Do­ing away with this con­sumer pro­tec­tion rule is part of the Trump ad­min­is­tra­tion’s idea of “Mak­ing Amer­ica Great Again.” Of course, it takes the coun­try in the op­po­site di­rec­tion. Lynn wor­ries that the rule might en­dan­ger the ex­is­tence of his com­pany, but a demise of pay­day lend­ing com­pa­nies might be some­thing that could ac­tu­ally be good for Amer­ica.

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