Crackdown Wanted on ‘Snake Oil and Fine Print’ Payday Loans
March 12 – Desperate for cash and unable to access traditional lenders for all kinds of reasons, some Mainers turn to financial institutions that provide payday loans on terms that are sometimes impossible to repay.
In a bid to offer better protection, Sen. Rick Bennett, R-Oxford, told a legislative committee this week that too many Mainers are “misinformed, swindled, swindled and abused by unscrupulous predatory lenders, often when ‘they find themselves in dire personal circumstances. also and most vulnerable to snake oil and fine print. “
Bennett introduced a bill this session that would put caps on the fees charged by lenders in the dark corners of financial services that sell money at shockingly outrageous rates to distressed Mainers.
His amended bill would require that all fees charged be factored into the calculation of interest rates. Maine imposes interest rate caps on Maine-based finance companies, but it does not limit the fees that may accompany loans.
The measure faces some opposition, mainly based on the fact that companies outside the state would still be allowed to charge excessive prices to residents of Maine. The future of the bill is uncertain.
In pushing his proposal, Bennett cited a complaint filed by a Mainer with the Federal Bureau of Consumer Financial Protection as an example of the types of practices he intends to end.
In this complaint, a wife said that with her husband “working a minimum number of hours” they were “in a very difficult financial situation”. She asked for a short term loan to have a desperate time.
To receive $ 650 immediately, the anonymous woman said, she accepted an installment loan that she hoped to pay off in two weeks, a period short enough that the interest was not too high.
What she found, however, was that the loan payment plan required her to pay $ 150 every two weeks for six months. It was $ 1,900 to receive a loan of $ 650. To pay it off after just two weeks, she had to fork out $ 190 in interest plus the principal – a 29% rate to borrow money for half a month.
Whitney Barkley-Denney, senior policy lawyer with the Center for Responsible Lending, told the Legislative Committee on Health Coverage, Insurance and Financial Services that Maine payday lenders can charge rates up to 271 % per year without evaluating whether the borrower can repay it. They can also seize money from borrowers’ bank accounts in their quest to collect their loan, he said.
“This toxic combination of loan terms is the debt trap by design,” Barkey-Denney said. “The debt trap is at the heart of the economic model”.
The state’s Consumer Credit Protection Bureau and its Bureau of Financial Institutions told lawmakers they had no position on Bennett’s bill, but stressed that there was “a There are a number of limitations to the scope of the proposal and the potential consequences for consumer lending in Maine that are important for the committee to assess while weighing policy changes. “
More importantly, since a 1978 Supreme Court ruling, federally chartered banks and other state institutions are not required to follow Maine’s interest rate caps and rules. As a result, state offices said consumers in Maine could still face higher rates if they turn to financial entities that are unregulated from Augusta.
Bennett said that while it is true that “unscrupulous actors are often beyond the reach” of Maine law, that does not mean that state policymakers are powerless.
All New England states except Rhode Island prohibit payday loans with interest rates above statutory limits.
From Ohio in the west to North Carolina in the south, the only other northeastern states that exceed the applied rate in Maine on a $ 300 loan are Rhode Island and Delaware, according to the Center. for Responsible Lending.
State offices also warned that the change could devalue Maine’s institutional financial charter and reduce lending opportunities for borrowers considered high risk.
“Consumers who desperately need credit have options for accessing credit, including non-internet banking lenders and unlicensed payday lenders. If loans from Maine lenders are limited, we might see residents turning their backs on more frequently to these other types of loans, which are much more difficult to regulate, ”the bureaus said in their joint testimony.
Kathy Keneborus, vice president of government relations for the Maine Bankers Association, told lawmakers her group opposes the bill because it would not apply to all lenders and may limit consumer choices.
She raised the specter of some borrowers unable to obtain small dollar loans from Maine banks, turning instead to “informal lending sources.”
Jonathan Selkowitz, a staff attorney for Pine Tree Legal Assistance, told the panel he sees what predatory lending can do.
“Crushing consumer debt is unfortunately a common trait among Pine Tree customers,” he said. Too many of them “are trapped in a cycle of indebtedness that prevents them from using the benefits of the consumer credit market to help accumulate wealth and get rid of the burden of poverty.”
“Pine Tree has observed how overwhelming consumer debt prevents Mainers from affording reliable vehicles to get to work, buy a house, rent and improve their earning power,” said Selkowitz.
What is happening, said Frank D’Alessandro, director of litigation and policy at Maine Equal Justice, is people are flying over their heads.
“These loans are rarely repaid with a single loan, but instead turn into multiple and repeat loans with increasing amounts of fees and interest,” he told lawmakers.
He said facing exorbitant interest rates puts Mainers who turn to payday loans at greater risk of hunger and homelessness.
Jody Harris of the Maine Center for Economic Policy urged the committee to support Bennett’s bill, which she called “a common sense change that would help thousands of Maine borrowers and level the playing field with other financial products. “
Lawmakers plan to discuss the bill soon.