Cerabino: Lawmakers should try fund-raising by payday loan terms

I propose a modest experiment with payday loans.

Chances are, if you’re not among Florida’s legions of working poor, you don’t know much about payday loans.

But if you struggle to make a living wage and need a few hundred bucks to pay an emergency expense to get you to the next payday, well, then you’re just the sort of customer that has made payday lenders rich.

As long as you have a job and a checking account, they will give you a short-term loan of up to $500 in the form of a cash advance that will be due for repayment in anywhere from a week to a month.

Oh, yes. And there’s interest of about 10 percent, which for a $500 loan is another $50.

The lenders are counting on you not being able to pay on the first deadline, and because they’re dealing with people who have a median income of about $22,000 a year, that’s a pretty good bet. So the lenders string you along by offering you multiple $50 interest payments when your loan comes due, allowing your debt to snowball until you’ve ended up paying more in interest than the original cash advance.

And because the lenders have your checking account number, they can always get the principal back by withdrawing the money directly from your checking account after you get paid — leaving you short and in need of another loan.

Florida lawmakers came up with a consumer protection law in 2001 that allegedly rescued cash-strapped borrowers from this predatory industry.

The state law prohibited payday loan customers from taking out another loan to pay for the original loan, it limited loans to $500 and interest rates to 10 percent, and it gave borrowers a 60-day grace period to repay a loan if they took a credit counseling course and set up a repayment schedule.

Problem solved? Hardly.

It’s a business that collects $280 million in fees from Florida’s working poor every year, and $3.6 billion across the country. And in spite of the state law, 88 percent of repeat loans are made before the borrower’s next paycheck.

The Center for Responsive Lending has found that 834,000 Floridians still rely on these loans, taking out an average of nine loans a year and paying an annual interest rate of about 312 percent.

As you might imagine, the industry has caught the attention of civil rights groups, consumer advocates, labor, religious, and community organizations.

Hundreds of these groups wrote an open letter to Congress three months ago, urging members to rein in this “debt trap” business by backing tighter regulations proposed by the Consumer Financial Protection Bureau, which was created by the Dodd-Frank Act.

The consumer agency reforms would shut down about 70 percent of these lenders, by their own estimate. The proposed regulations would require lenders to verify that borrowers have had a change of circumstances that enable them to repay a second or third loan. And after a third loan, borrowers would be forced to have a 60-day “cool off” period before becoming eligible for another loan.

Now, you might imagine that Democrats, who fancy themselves at the champions of the little guy, would be firmly behind these measures proposed by the consumer protection bureau.

But you’d be wrong. They’re joining many Republicans in trying to kill the consumer protections by proposing a bill that establishes the same ineffective rules Florida had enacted 15 years ago, and forbidding the Consumer Financial Protection Bureau to enact any new payday lending reform for the next two years.

Call me cynical, but I have a theory why this is happening.

For the last election cycle, three of the top 50 recipients in the country of campaign donations from the payday lending industry has been Democrats U.S. Rep. Patrick Murphy ($39,500), U.S. Rep. Alcee Hastings ($35,000) and U.S. Rep. Debbie Wasserman-Schultz ($31,250), according to Americans for Financial Reform, a coalition of 200 consumer, labor and special interest groups.

And it just so happens that Murphy, Hastings and Wasserman-Schultz, who is also the chair of the Democratic National Committee, are also three of the principal South Florida backers of this legislation to sideline consumer protection against unscrupulous lenders.

So here’s my experiment.

Instead of taking cash gifts from the payday lenders — which effectively transfer payments from Florida’s working poor to their elected leaders — members of Congress ought to be required to fund their campaigns by relying on the same payday loans they’ve inflicted on their constituents.

No more gifts from people who need favors. Just loans from the sorts of businesses they’ve unleashed on others.

I realize it will be tough. Their campaigns will continue to get poorer and poorer, as they make ends meet by taking multiple short-term loans. And all the while, being drowned in exorbitant interest rate payments.

These lawmakers might even wish they didn’t think it was such a good idea to sideline the Consumer Financial Protection Bureau for two long years.

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