Payday lenders have always straddled the line between need and operation. Cash advances can cover a medical emergency or help pay rent, but they can also come back to bite. Whether it’s a loan of several thousand dollars or a hundred dollars, recurring fees and stratospheric interest rates can trap desperate borrowers in a never-ending cycle of debt.
So to protect residents from predatory loans, more than half of all states, including Florida, have placed limits on interest rates for short-term and installment loans offered by payday lenders. Lately, however, a few profit-hungry installment lenders have found a way around these consumer protections – and Florida lawmakers are doing nothing about it.
Using the convenience of easy online apps, digital lenders Elevate Financial and OppLoans can put cash-strapped Floridians on the hook for triple-digit interest rates on loans that can be repaid over months or months. years, if ever. While other Sunshine State payday companies are prohibited from charging more than 18-30% on installment loans, Elevate and OppLoans can charge between 99-160% annual interest after factoring in fees, according to a recent report from the National Consumer Law Center (CLB).
Consumer advocates have sounded the alarm bells on these lenders. While small loans from businesses like Amscot come with their own set of risks, these loans must be paid off in one go and cannot exceed $ 1,000, making them less likely to plunge borrowers into a cycle. prolonged turnover of missed payments and new debts. . With frightening consistency, it’s the big, long-term loans that eat up borrowers, and online lenders flaunt the highest default rates.
So how do Elevate and OppLoans fare with in-flight Floridians? By “leasing” out of state banks. In these “rent-a-bank” loan laundering programs, lenders approve a loan and then send the borrower’s information to a chartered bank, which is regulated by federal law and therefore exempt from loan limits. state interest. The bank pays the money, issues the funds to the borrower, and then sells the borrower’s debt back to the payday lender for a small premium.
With this simple chain of events, lenders like Elevate and OppLoans can bypass state regulations and their banking partners make a quick profit. It’s a win-win for everyone except the borrower, who rarely reads the fine print.
– StopTheDebtTrap (@StopTheDebtTrap) February 14, 2018
“Elevate and our banking partners operate in full compliance with federal and state laws and are proud of the products that our banking partners are able to offer to people in Florida and the United States,” said a spokesperson for Elevate. New times.
Even more concerning is the existence of bank rental programs in Florida considering that they were effectively killed by regulation almost 15 years ago. In other words, the problem isn’t with a new legal loophole that lawmakers and regulators are struggling to catch – it’s an old scam that has returned thanks to the Trump administration’s deregulation ambitions.
Federal banking regulators are tasked with cracking down on most of the banks exploiting the loopholes in bank leasing, but these regulators have done everything but cancel them lately. While regulators under the previous two presidential administrations could have threatened to withdraw the charter from any financial institution involved in a bank leasing program, regulators in the Trump era have been positively friendly towards the banks that funnel money. for installment lenders, as well as the payday lending industry in general.
Despite federal indifference, there are still a few ways state officials could oppose bank leasing programs, according to NCLC associate director Lauren Saunders. Florida lawmakers could draft a law prohibiting lenders involved in such schemes from doing business in the state. Even without stricter laws, the state attorney general’s office could sue payday lenders for violating Florida laws, which the attorneys general of Colorado and Pennsylvania have done.
“Payday lenders have stayed away from states where they think they’re going to fight,” Saunders said. “Nobody is doing this, say, in New York, where the attorney general will aggressively enforce state laws [interest] laws. Lenders are trying this in states where they think they can get away with it. ”
For now, Florida appears to be a place where lenders can have free rein. In January, a coalition of attorneys general from 14 states and the District of Columbia drafted a letter to FDIC urging regulators to “discourage a resumption of the bank leasing programs that arose in the early 2000s”. Florida Attorney General Ashley Moody did not sign the letter and did not add her name to a list of 16 attorneys general lobbying federal regulators last December to crack down on another ploy used by predatory lenders.
” I have not seen [Moody] getting so involved in consumer protection that payday loan companies would be afraid to do business in Florida, ”said Lynn Drysdale, consumer protection attorney for the nonprofit Jacksonville Area Legal Aid Inc.
In response to a New times Investigating a bank’s leasing programs in Florida, a spokesperson for Moody said his staff would look into the matter “to see if any of the issues were within the purview of our office.”
So how bad are Florida bank leasing programs? It’s hard to say. Unlike most payday lenders, which are highly regulated and required to report their activities to state officials, bank rental lenders such as OppLoans and Elevate are exempt from these reporting requirements, says Alice Vickers, director of the Florida Alliance for Consumer Protection.
According to the Florida Office of Financial Regulation, no complaints have been filed against OppLoans or Elevate. However, Vickers contends that consumer complaints are an incomplete measure, as news of many problems with payday lenders never reaches state officials.
“In my mind, you don’t even need consumer complaints to start taking action. You have to ask yourself why our state government is authorizing these loans in the first place,” Vickers said.
In recent years, Florida lawmakers have made it easier, not harder, for the payday lending industry. In 2018, Gov. Rick Scott enacted legislation that allows lenders to provide larger, short-term loans of $ 500 to $ 1,000, which consumer advocates say increases the possibility that borrowers delay their payments and are subject to crippling fees and interest. rates. The bill has not affected online lenders such as OppLoans or Elevate as they are installment lenders.
This story has been updated to include comments from Elevate.