Florida’s financial regulators want the federal government to butt out of their business. At least their payday lending business.
“If they really wanted to be helpful, they’d leave us alone,” Drew Breakspear, the commissioner of Florida’s office of financial regulation, told The Washington Times, speaking of the Consumer Financial Protection Bureau’s proposed rules to regulate the payday lending industry.
If federal regulators must get involved, they should “take the Florida model and mandate it for the other 49 states,” Mr. Breakspear said. “We have a very good model here, and it works. Because we’re on the ground, we’re in a much better position to regulate issues as they come up and take enforcement actions if people are doing something incorrectly.”
In March, the CFPB outlined a proposal to regulate the payday lending industry, arguing that many storefront lenders across the nation were entrapping customers into a cycle of debt — meaning many borrowers would take out the high-interest loan, then be forced to repay it by having to take out other loans.
In about 20 percent of payday lending cases, the customer must take out a series of loans to fully pay off the initial loan, according to the CFPB. The CFPB’s proposed rule would force lenders to certify that their customers could pay back the loan without having to take out a new one and make borrowers wait 60 days between loans.
It’s these requirements that would put Florida’s payday lenders out of business and leave millions of Floridians without the credit they need to survive whatever their circumstances, Mr. Breakspear said.
“People who take payday loans, some of them are desperate,” said Mr. Breakspear. “A couple of years before I took this job, I was talking to a skier on a ski lift and payday lending came up and he said to me, ‘I took out a payday loan once.’ I asked him how much he took out. He said ‘$300 for 30 days.’ I asked him how much he was charged. He said ‘$42 — but it was the only way I could pay the bills. I would’ve paid $100 for the $300 loan if I needed it to feed my family.’
“There’s a large base of people who need the loans. Yes, they’re expensive. But if you take them away, what do you replace them with?” Mr. Breakspear asked.
According to a study conducted by Deloitte Consulting LLP, the CFPB rules could lead “to the closing of most, if not all [small-business payday lending] stores, resulting in the loss of jobs for most, if not all employees.”
Last year, 7.8 million payday loans were made in the state of Florida from state-licensed, regulated vendors. Of those loans, the state’s financial regulator received only 117 customer complaints — evidence that Florida regulators tout as a successful balance of weighing industry interests with consumer-focused regulation.
Florida’s payday lending law was enacted in 2001 after more than five years of state elected officials investigating the industry and talking with consumers, payday business owners and consumer advocates.
In the end, they were able to negotiate one of the toughest payday lending laws on the books without stifling the industry or a consumer’s access to credit, the state brags.
Florida’s law prohibits loan rollovers and limits a borrower to a single advance of no more than $500. Payday lenders that are licensed in Florida cannot charge interest fees that exceed 10 percent of the loan, with its terms ranging from seven to 31 days. A statewide database was created, allowing lenders to see whether a customer’s past loans were paid, when they last took out a loan and whether they were eligible for a new one.
The state requires a 24-hour “cooling-off” period between loans. If borrowers can’t repay their loans, they have a 60-day grace period, provided they agree to take part in credit counseling and set up a repayment schedule.
Still, an alliance of consumer advocates in Florida continues to criticize the advancements and calls for tougher restrictions on lenders like what the CFPB is proposing.
More than 20 consumer groups wrote a letter to Florida’s delegation to the U.S. House of Representatives because of its support of the payday lending industry.
Earlier this year, all but one member of the Florida delegation wrote a letter to the CFPB urging the board to consider Florida’s regulatory model for payday lending. The lawmakers suggest that a federal one-size-fits-all regulation would harm a system that was already working in their state.
“To ignore our experience, which has proven to encourage lending practices that are fair and transparent without restricting credit options, would do an immeasurable disservice to our constituents, many of whom rely on the availability of short-term and small dollar loans from regulated, licensed non-bank lenders to make ends [meet],” the April 28 letter stated.
The signatories included the state’s two longest-serving Democrats in the House, Reps. Alcee L. Hastings and Corrine Brown, and Democratic National Committee Chairwoman Debbie Wasserman Schultz.
The consumer advocates have a different take.
“We disagree strongly with any perception on your part that Florida’s regulatory structure provides Florida consumers with a loan that protects them from economic harm,” the advocates wrote in the June 2 letter.
Alice Vickers, director of the Florida Alliance for Consumer Protection, was one of the signatories.
“What we know is that with the extremely high interest rate that the consumer is ultimately paying in Florida, what our clients have bore out, is that many people who take out the payday loan do make the lump sum payment but then are immediately short of cash, where after 24 hours they take out another payday loan,” Ms. Vickers said.
Floridians who use payday loans take out an average of about nine loans a year, according to research conducted by the Center for Responsible Lending, an organization that is advocating for stronger payday lending regulations.
The average loan is $250, meaning the borrower pays about $25 to take out the loan if the lender charges Florida’s limit of 10 percent interest. On an annualized rate, the interest rate is 312 percent.
“With the effective interest rate so high, I can’t view the product for being good for any consumer. These loans are just not a good option. I don’t for a minute think that if we didn’t have the payday loans we have in Florida, the sky would fall,” Ms. Vickers said.
Ms. Vickers advises consumers to go to family members, their church groups or charitable organizations if they are short on cash and need loans.
Mr. Breakspear disagrees.
“New York City banned payday lending, and you know what happened? If you were desperate for money, you went to a loan shark,” Mr. Breakspear said. “Three things happened: You did pay the loan back, you did pay a lot of interest, and occasionally you did incur medical expenses.”
If the CFPB’s regulations go into effect, “I believe a lot of payday lenders would go out of business and the industry would be killed, with nothing to regulate. It would throw a huge number of people out of work in this state and take a group of people, who rely on payday lending, without a place to go,” Mr. Breakspear said.
Florida has 130 licensed payday lenders operating in 1,000 locations. The state’s financial regulator is conducting another set of examinations of its licensed lenders, but it’s not an industry in which they have “any significant concerns,” said Gregory Oaks, director of the division of consumer finance out of Florida’s Office of Financial Regulation.