LINCOLN, Neb.–After more than 100,000 signatures were collected, a measure has been added to the ballot in Nebraska that would cap loan rates for payday lenders at 36% annually.
The initiative was placed on the ballot by a consortium of groups called Nebraskans for Responsible Lending. The effort began after advocates struck out with legislative attempts to limit the costs of payday loans, according to the Star Herald.
Backers of the proposed Initiative 428 collected more than 120,000 petition signatures to get the measure on the ballot.
“Advocates argue that payday lenders cater to people who are desperate and often have little money to spare,” the Star Herald reported, citing a state report that showed that payday borrowers in Nebraska last year ended up paying an average of 405% annual rate.
The Star Herald provided coverage of one man who borrowed $500 from a payday lender, paying a $75 fee for two-week loan. Ultimately, the man ended up paying $5,800 in fees on the loan.
A 1994 Nebraska law authorizing payday lenders in Nebraska exempted them from the general 16% cap on interest rates, the Star Herald reported.
‘High Rates are Immoral’
"My perspective is that high interest rates are immoral," the Rev. Damian Zuerlein, who ministers at St. Frances Cabrini Catholic Church in Omaha and is one of the petition sponsors, the Star Herald reported. "It penalizes the poor. It penalizes the person who is in an emergency situation, it just makes their life much worse."
Representatives for the payday lenders told the publication the proposed cap would drive most, if not all, payday lenders out of business and leave their customers without good alternatives when they need money.
The ballot measure would mean capping fees at $1.38 per $100, well below the margin needed to cover costs for a business which sees large numbers of defaulted loans, Kent Rogert, a lobbyist for the Nebraska Financial Services Association, told the Star Herald. He said the default rate ranges from 25% to 40%.
Greg Wittmeier, chief operating officer for EZ Money, told the Star Herald his company likely would close seven of its nine Nebraska stores if the measure passes. That would be 22 or 23 jobs lost and multiple storefronts left vacant. He predicted the same would hold true for other companies.
What State Data Show
According to the publication, reports compiled by the Nebraska Department of Banking and Finance, which regulates payday lenders, showed that about 50,000 people took out payday loans last year. The average loan was for $362 and the average person got 10 loans over the course of the year.
The payday lenders told the Star Herald that after a similar cap passed in South Dakota the caps drove out payday lenders and forced people to turn to costlier and less regulated options, such as pawn shops, bank overdraft fees or unregulated online lenders.
“But advocates said people in those states have turned to other, less-costly alternatives,” the Star Herald reported. “A Brookings Institute report found that the number of unsecured and payday alternative loans by credit unions increased after the South Dakota measure passed.”