Just before Christmas in 2010, Phil Davis discovered that his car was in need of repairs. He still remembers a decade later because he and his wife had to spend all the money they had saved for Christmas that year on the car.
“At the time, we had a 3-year-old son and we didn’t want to tell him that there was no Santa Claus and that there would be no Christmas,” said Davis, who lives in Gretna, Nebraska. .
So they went to a payday lender and took out a $ 500 loan, he said, “Thinking, you know, we’re going to take this out, we’re going to pay it off, okay, we’re going to make it work. . “
It ultimately took them three years to pay it off and cost over $ 5,000.
Stories like this are common in Nebraska, where the average annual interest rate on payday loans is over 400%, and in the 31 other states where lenders can charge triple-digit interest on low-value loans. More than 80% of people who take out a personal loan fail to repay it within two weeks and end up having to take out another loan, the Consumer Financial Protection Bureau found in 2014.
Nebraska consumer advocates have been pushing state lawmakers to cap interest rates on payday loans for years, according to Aubrey Mancuso of Voices for Children in Nebraska, to no avail. So this year they put the question on the ballot and won, with nearly 83% of the vote.
“It’s been a long time since 83% of Nebraska voters agreed on anything, if ever,” Mancuso said with a laugh. “This is one of those issues where elected officials are really out of step with the situation of the people in Nebraska. “
By adopting Initiative 428, Nebraska joins 16 other states and the District of Columbia in capping interest rates on payday loans at 36% or less. the Military Loans Act, adopted in 2006, also prohibits lenders from charging active-duty military personnel more than 36% annual interest on small loans.
“Initiative 428 was just a huge victory for consumers,” said Kiran Sidhu, policy advisor for the Center for Responsible Lending. “Especially low-income consumers and consumers of color who are particularly affected by COVID, and then also particularly affected by payday lenders in Nebraska.”
The state’s payday loan industry has fought hard against the 36% cap, even lodged a complaint without success to try to keep the measure out of the ballot.
Now that it has passed, “90% of the stores that are open now will close at the start of the year,” said Kent Rogert, a lobbyist for the Nebraska Financial Services Association. “There is no profit in this. We can’t pay an employee to sit there with that type of feedback. “
It happened in most of the other 16 states who have passed similar interest rate caps. If payday lenders pull out of Nebraska, Nebraskans have other options for small, short-term loans, according to Mancuso.
“In Omaha we are really lucky because we have a nonprofit lender called Lending Link in the community,” she said. “Our credit unions across the state also have a small dollar loan program.”
Both, she says, are better options than payday loans, which just tend to get into more debt.