Payday lenders vanish in Nebraska following 36% rate cap

• Consumer protection? Thy name is Nebraska
• Payday lenders claim rate caps are a death knell for their industry
• Former predatory payday lending customers are finding alternatives

“I kept getting these text messages and phone calls early in the morning or late evening. When I finally did speak with them on the phone, all they wanted was my social security number.”

Stories of harassment like this one from a Nebraska woman, featured in an Omaha 6 News segment, have become par for the course when dealing with predatory payday loan companies in the two years since the state of Nebraska placed a 36 percent interest rate cap on the vulturous industry.

According to a recent investigative study by the Better Business Bureau (BBB), predatory payday loan outlets and similar fraudsters are harassing and attempting to trick consumers by phone, email, and traditional mail, trying to convince them of industry laws that don’t exist, and refusing to explain the precise terms of loans.

The BBB says instances like these represent major red flags in an industry already rife with disreputable tactics and a reputation to match. 

What only adds to the confusion and frustration is that predatory payday lending laws are handled on a state-by-state basis within the 32 states they are offered. BBB’s research says that dynamic represents a complicated, perplexing, and possibly corrupted web of regulations that make the impact of the industry difficult to track and hold accountable. 

“The primary issue is that these loans carry triple-digit interest rates,” says Josh Planos, Vice President of Communications and Public Relations for the BBB. “And they’re compounded by the interest that is sometimes compounded weekly or monthly rather than annually.”

Fortunately for the aforementioned Nebraskan above, she dodged the fate that can catch up to many unwitting consumers. “I actually had a friend that had her identity stolen and then there was some financial stuff there,” she said. “I got lucky.”

Consumer protection? Thy name is Nebraska

Apparently the fine citizens of Nebraska had quite enough of the predatory payday lending industry in 2020, finally giving them the boot with their vote.

As this September autumn rolls into October, Nebraska’s payday lenders have all but shut down in the two years since voters capped the annual percentage rate they could charge. The handful of holdouts surrendered their delayed-deposit service business licenses in December 2021, according to the Department of Banking and Finance records.

There had been 19 such businesses merely six months prior. That number, in turn, was down from the 65 businesses licensed June 30, 2020, right before Nebraska voters passed a ballot measure limiting payday lenders to charging 36 percent APR. Not only that, but the measure passed with more than 80 percent support. The Cornhusker State apparently had enough!

One of the leaders for Nebraskans for Responsible Lending, former senator Al Davis, had an understandable reaction to the predatory payday lending industry’s disappearance from the state. “Isn’t that a shame,” he said, derisively. “They portrayed themselves as Good Samaritans helping people out, but they were anything but.”

While Davis admitted he never anticipated that all payday lenders would close shop, he always had faith the number of such shady storefront outlets and their ilk would suffer a remarkable drop. Even in the run-up to the 2020 vote industry insiders claimed some lenders were likely to hang on by their fingernails. 

Payday lenders claim rate caps are a death knell for their industry

In response to the new rules, payday lending industry talking heads are suddenly painting themselves as the victims, claiming the cap would drive most, if not all, payday lenders out of business and leave consumers without viable alternatives when they need funds. 

Ken Rogert, a lobbyist for the payday lending industry, claims the amount one makes with a 36 percent rate cap isn’t enough. “The amount of money you’d make is less than what it would cost to process those transactions,” he says. “You can’t pay the light bill with that.”

Rogert explained, however, that some formerly delayed-deposit businesses may still be open to offer other services like check-cashing for a fee. Here’s the rich part, though: he claims he doesn’t know what former customers are doing now if they need immediate funds. 

A Center for Responsible Lending report in 2017, however, proved that claim false. Research in other states found that people turned to less-costly means of accessing funds when the payday lending industry shuts down.

One case study mentioned in the report and performed by the University of North Carolina’s Center for Community Capital wanted to see what effect the end of payday lending had on low- to moderate-income households in North Carolina — what options they had for dealing with financial hardships, and whether they considered themselves better or worse off without payday lending. 

Of the 400 consumers attending focus groups of former payday lending customers, the researchers concluded that the absence of payday lending outlets represented no significant impact on the availability of credit in the state, and identified an array of financial options low- to moderate-income consumers could turn to if they found themselves with more month than money. While never optimal, such options included the use of a credit card or cash advance, informal financial help from friends or family, cutting back on expenses, or temporarily dipping into savings.  

As we all know by now, there are much better ways than even those. Patricia Herstein, general counsel for the Nebraska banking department, and James Goddard, program senior director for Johnny Appleseed, another group that backed the rate cap ballot measure, said more credit unions have been offering financially healthy and economically stabilizing small dollar loans. 

Your credit union, fair executive, has always had an ace in the hole. The very foundation of your cooperative has always been to build upon your members’ financial inclusion efforts and work with them to construct their path to ever-better financial wellness results. Their access to you and your mentorship and good-faith guidance enables them to improve their financial lives, however, it also enables them to scale up to higher-level products and services.

Former predatory payday lending customers are finding alternatives

Two years after the correction, so far Goddard says Nebraskans are seemingly finding alternative means to access immediate funds. He said his group Appleseed has not reported any people in the community claiming they are struggling to find alternative financing, at least not like they used to hear people who were struggling after taking out a predatory payday loan. 

“It [was] a harmful product that trapped people in a cycle of debt.”

At this point in credit unions’ evolution, the movement must now recognize that the excuses – particularly following the experiences of the COVID-19 pandemic – for not investing and taking action on members’ contemporary needs to gain immediate access to affordable, short-term funds is no longer viable. Fintech has been a readily-accessible resource for a while now in partnering with credit unions to get members the access they need, whenever they need it. 

QCash delivers an ethically-responsible, multi-channel integration experience built with your brand on our platform, while the data analytics engine leverages your member relationship data to manage risk, and with no credit check. Built with your cooperative in mind along with the ease of use for your members, the QCash platform originates and funds the members’ Life Event Loans in one minute or less.

The state of Nebraska proved that the age of the predatory payday lender is out-dated, financially unhealthy, and an unscrupulous business model whose time has long gone. Thanks to responsible fintech, an age of good-faith, relationship-based, and ever-innovative small dollar lending partnerships represent the present and future of the credit union difference.

If you would like more information on how the QCash CUSO can enhance your credit union cooperative’s member service offerings, feel free to go to our website and download any of our white papers for practical, real-world client-partner successes.