Rollback of lending rule creates virtual debt slaves

“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 consumerfinance.gov.

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 consumerfinance.gov. 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.