- Associated Press - Sunday, February 19, 2017

LINCOLN, Neb. (AP) - Elsa Ramon-Moody said she knew the risks that came with taking out high-interest, short-term loans, but when the Lincoln woman lost her job and expenses started piling up, she turned to a loan she thought she could pay back.

“With all the expenses and not having a safety net, I thought I’ll just borrow $500 because I started falling behind in bills and I was unemployed,” she said. “One loan became two and two loans became three.”

The loans resulted in a court judgment that further ruined her credit, and Ramon-Moody is still clawing her way back to financial security with a new job that pays $12.50 an hour.

“I don’t want to play the victim and say, ‘Oh, poor me.’ I needed the money to not get evicted,” she said. “But the thing is so usurious and so predatory that the Legislature has the responsibility to regulate this and not allow these sharks.”

A legislative committee on Tuesday will hear two vastly different approaches to regulating the payday lending industry.

One bipartisan measure, modeled on a 2010 Colorado law, would cap annual interest rates at 36 percent, limit payments to 5 percent of monthly gross income and limit total interest and fees to 50 percent of the principal balance - meaning the most someone would pay to borrow $500 is $750.

The other bill, brought to Sen. Joni Craighead of Omaha by an industry lobbyist, would keep payday lending as is and create a new type of loan. These loans could be up to $2,500 paid back within two years with 18 percent monthly interest, meaning paying back $500 over one year would cost about $1,250.

Sen. Lou Ann Linehan, a Republican from Omaha who co-sponsored the first bill with Democratic Sen. Tony Vargas of Omaha, said she’s noticed more payday lending storefronts popping up in areas with large immigrant populations. These are people who may not be able to go to their families or traditional banks for loans, she said.

“I don’t want to close these businesses down, but I do want to make sure people aren’t being taken advantage of,” Linehan said.

During the past few years, poverty levels among Latino immigrants in Omaha and Nebraska City have “increased extraordinarily,” said Sergio Sosa, executive director of the Heartland Workers Center. His Omaha-based group learned through a survey last year that many immigrant workers borrowed money from payday lenders.

“They know that they can get the money, but there is a lot of misinformation over the interest rates,” Sosa said. “They get the money, but it’s kind of a trap.”

Unlike other states, Nebraska doesn’t allow users to roll their loans over if they can’t pay. Borrowers can take out loans of up to $500 from different stores, which is what Ramon-Moody did to pay her rent and help her daughter at an out-of-state college. Lenders charge $15 per $100 borrowed.

Borrowers must bring in checks post-dated up to 34 days - a third bill to be heard in committee Tuesday would extend this to 40 days, a step sponsor Sen. Brett Lindstrom of Omaha said could alleviate some pressure - or give the lender access to their checking account to withdraw funds electronically. If the check doesn’t clear, borrowers are charged a $15 fee and sent to collections.

Less than 5 percent of loans end up at collections agencies, said Brad Hill, a payday lender and president of the Nebraska Financial Services Association who called the bill “paternalistic legislation” that will shutter small businesses.

About 80 Nebraska businesses offer payday loans, according to the state Department of Banking and Finance. Several of these businesses, including Hill’s EZ Money Check Cashing, have multiple storefronts.

“I think it’s an industry-killer,” Hill said. “It’s a job-killer.”

He supports Craighead’s legislation, which he views as an alternative to payday loans. Flexible loans created by Craighead’s bill wouldn’t require borrowers to have a checking account, and they’d have a longer-term loan with a lower, but still high, interest rate.

Payday lenders would offer both types of loans, meaning they’d still have a business model if national restrictions floated by the Consumer Financial Protection Bureau take effect, said Justin Brady, a lobbyist who helped draft Craighead’s measure.

The federal agency proposed a rule last summer requiring lenders to ensure borrowers can repay the full payment before lending and limiting repeated debit attempts, but it’s unclear whether the rule will be finalized under the Trump administration. It also faces opposition from a Republican Congress, which can undo new rules with a simple majority vote in both houses.

Flexible loans will give people with bad credit the ability to borrow money for necessities, Craighead said. The concept of helping borrowers is good, she said, but Vargas’s bill would set interest rates too low and drive payday lenders out of business. Instead, Craighead said, borrowers ask themselves whether they’re taking out a loan for a want or a need.

“There are a lot of people who get in these situations one time, but there’s also a group of people for whom this becomes a way of life,” she said. “They get the $500 loan, and then they can’t pay it and they go get another $500 loan and pretty soon they’re so backed into a corner they don’t know where to turn. It’s like ‘Time out. You need financial education.’”


Follow Julia Shumway on Twitter at https://twitter.com/JMShumway

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