When people go to a payday lending business for cash, it’s likely because they have no other way of borrowing money and they need the cash now.
They agree to pay whatever exorbitant interest rate the lender is charging. Currently, payday loan interest rates in Nebraska average more than 400%.
This is taking advantage of the people who can least afford to pay. But they have medical bills, car repairs, utility bills or other expenses that must be paid immediately, so they agree to pay the interest when they sign up with the payday lender. Then, if they can’t pay it a month from now, they’ll have to borrow more money again. It’s a vicious cycle.
The fact that Nebraska has no limits on the interest rates payday lenders charge is probably the explanation for why there are so many payday lenders in Grand Island and throughout the state. The state’s only restriction is that their fees can be no more than $15 per $100 loaned, with a maximum loan of $500.
But on the Nov. 3 ballot is Initiative 428, the Payday Lender Interest Rate Cap Initiative, which would limit the annual interest charged by payday lenders to 36%. No fees could be charged that would bring the total annual cost up to more than 36%.
That is still more than almost any credit card issuer charges, but it would be a great improvement.
Four states — Colorado, South Dakota, Montana and New Hampshire — already have 36% annual interest rate caps that prohibit additional fees or charges. The first three enacted their limits through citizen initiatives, similar to the one on Nebraska’s ballot. This underlines the importance of citizens being able to petition for initiatives to be placed on the ballot.
Four other states authorize payday lending with limits on the annual percentage rate, but permit lenders to charge extra fees on top of interest. Twenty-nine other states allow payday lending with no limits on APR.
Payday lending reform has been needed for a long time in Nebraska and this initiative is a great step forward. Triple-digit interest rates on any loans are outrageous and should be illegal.
Vote FOR Initiative 428 to place a cap on payday lending interest rates.
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