2019 Priority: Improve regulation and prevent expansion of predatory lending

Payday loan storefronts are a common sight in much of Oklahoma, and these high-interest loans are creating financial hardship and ruin for too many working Oklahomans. These loans are a form of predatory lending with exorbitant fees and astonishingly high interest rates of over 450 percent, trapping borrowers in cycles of debt that can be nearly impossible to break.

In 2017, the payday loan industry attempted to expand their predatory practices with a bill that would have allowed a new high-cost loan product called installment loans. These new installment loans would have allowed borrowers to take out loans of up to $1,500 for up to 12 months, with an annual percentage rate of over 200 percent. Thankfully Governor Fallin stepped in to veto this harmful bill, but it’s almost certain that the industry will again attempt to push through new and harmful high-cost loan products in Oklahoma this year.

The Solution

The answer to the very real harms of predatory lending is not more loan products with higher dollar amounts, outrageous interest rates, and longer cycles of debt. We must resist any attempts to introduce new high-cost loan products in Oklahoma or expand existing products. Oklahomans already use payday loans at a higher rate than residents of any other state, and a new form of predatory lending will simply make us worse off.

Instead, we should adopt proven consumer protections, like capping allowed interest rates on consumer loans at 36 percent, as 15 other states have. Federal laws enacted with bipartisan support already make it illegal to charge service members more than 36 percent interest on a loan. Another strong consumer protection would be to prevent debt traps by limiting the number of days in a year in which a borrower has a payday loan outstanding and allowing lenders to make only one loan at a time to a borrower.

What You Can Do

Contact your state Representative and Senator and urge them to reject any bills that would expand predatory lending practices. Also ask them to increase consumer protections for borrowers to prevent debt traps. You can look up your state Senator and Representative here. You can also call the House switchboard at 405-521-2711, and the Senate switchboard at 405-524-0126.

To join the grassroots coalition of Oklahomans working to connect Oklahoma values with better budget and tax priorities, visit www.togetherok.org. To receive SMS advocacy alerts on important economic security issues, text OKECON to 51555.

Key Points

Oklahomans already have easy and widespread access to non-traditional sources of credit.

  • Payday loans of up to $500 are available from more than 200 licensed deferred deposit lenders.
  • Signature “B” loans of up to $1,530 are available from more than 1,200 licensed supervised lenders.

Oklahomans use these products at very high rates.

Installment loans would be more expensive than existing loans.

  • The installment loan product passed by the Legislature in 2017 and vetoed by Gov. Fallin (HB 1913) would have created loans that hit borrowers with charges 3 to 4 times higher than the comparable “B” loans that are already available.

Any new loan product that is “stackable” with existing products is especially dangerous.

  • Borrowers could take out the maximum amount of each loan product and quickly accumulate a large debt.
  • Any new high-cost product that can be taken out in addition to the maximum payday loans and the maximum “B” loans would make struggling Oklahomans worse off.

High interest loans are NOT necessary, even for borrowers with bad or non-existent credit.

  • The solution to financial struggle is not a high-cost loan with triple digit interest that traps the user in a cycle of debt.
  • In states where high-cost lending is illegal or severely restricted, individuals in difficult financial situations find other ways to cope. Many find ways to cut back on expenses or borrow from family and friends. They also negotiate payment plans with landlords and utility companies, use pawn shops, or try to get a loan from a bank or credit union.
  • When storefront loans are not available, would-be payday borrowers don’t seem to be turning to online payday loans. The rates of online payday borrowing are not significantly higher in states with no storefront payday lenders than they are in states that allow payday lending.

ABOUT THE AUTHOR

Oklahoma Policy Institute (OK Policy) is a non-partisan independent policy think-tank. OK Policy promotes adequate, fair, and fiscally responsible funding of public services and expanded opportunity for all Oklahomans by providing timely and credible information, analysis, and ideas.

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