For low-income people caught in a debt cycle, Florida legislation proposes new 36-percent interest rate

The poor may not have much money, but there are plenty of companies looking to make a buck off their financial struggles.

A case in point: legislation (SB 874/HB 469) advancing in the last weeks of the 2019 Florida legislative session that would create a new statewide consumer-loan program that could charge interest rates as high as 36 percent.

“A 36 percent interest rate is very high,” said Rep. Cyndi Stevenson, a St. Johns County Republican accountant who opposes the bill. “Those are not the kind of rates that people are going to thrive on. Those are interest rates that can get people in a lot of trouble.”

Florida’s standard interest rate cap is 18 percent, but rates as high as 30 percent are allowed for some consumer loans. The proposed “Access to Responsible Credit Pilot Program” legislation would increase the highest interest rate allowed in Florida by 6 percent, to 36 percent. It’s patterned after a California law.

Proponents of the measure say the higher rates will bring more lenders into a marketplace that’s designed to serve lower-income Floridians who have little access to traditional loans because they have bad credit or no credit rating at all.

The bill’s sponsor, St. Petersburg Democrat state Sen. Darryl Rouson, says it “creates a new product for the market.”

“It will provide greater access to small-dollar consumer loans and will assist in building credit,” he said. “Its main purpose is to help individuals build or repair credit.”

The Senate bill would cap the maximum loans at $10,000, while a similar House bill would have a $7,500 cap.

Alice Vickers of the Florida Alliance for Consumer Protection opposes the legislation.

“We feel like consumers in Florida have ample opportunities for small-dollar loans,” Vickers argues. “There are many storefronts that make loans under $1,000 and under $500 and do report to credit bureaus and do engage in underwriting. We’re always looking for alternatives. This is not one we can support. You’re giving away too much with this bill.”

Supporters say the pilot program would also offer more of what they call “consumer protections” because it would create financial criteria for offering the loans. For instance, it would require someone seeking to borrow $3,000 or less to have a debt-to-income ratio of 50 percent or less. And the program would require lenders to report the loans and their payment history to the national credit-rating agencies. Currently, those credit reports are not always filed, which can limit the ability of consumers who pay their loans in a timely manner to build a good credit record.

Consumer advocate Vickers calls the 50 percent debt-to-income ratio a “weak” lending standard, saying it doesn’t take into account other obligations people might have, such as rent, groceries or child-care expenses. And she questioned the program’s use of “access finders” – people who  would solicit borrowers and act as middle men between customers and lenders.

The pilot program may be focused on small-dollar loans, but big money is in play. Two Silicon Valley companies have squared off over the legislation.

Oportun, a company involved in California consumer-loan program, opposes the measure. Oportun offers Florida loans now under existing state regulations and says a new program isn’t needed.

A company called Aura is backing the Florida pilot program. It already has a partnership with DolEx, a company that now helps Floridians transmit money to Latin American countries and offers check-cashing services. DolEx, which also supports the legislation, could serve as an “access partner” for Aura under the new program.

So far, the legislation has not picked up much opposition in the Legislature. The House bill cleared the Commerce Committee in an 18-3 vote on Thursday.

Besides the specter of lenders preying on vulnerable Floridians with high interest loans, Republican state Rep. Stevenson said she is troubled that it will cost the state more than $1 million to hire more financial regulators to oversee the new program and to set up a website to provide details on the loans.

“In my take, if we pass this bill, we’re asking the taxpayers of Florida to help subsidize the regulation of new product to allow somebody to charge higher interest rates and use more aggressive marketing techniques,” she said.

Stevenson said if lawmakers want to help lower-income Floridians create a credit record, they could add that to the state’s current consumer loan program.

She said her opposition is motivated by a discussion she had with a constituent who borrowed $1,200 but it ballooned to $12,000 a dozen years later.

“And she was getting garnishments. She’s from a foreign country. She’s an English speaker. But she does not understand the laws and all those things that were done,” Stevenson said.

“Debt traps are one of the reasons that people get stuck in low-income areas,” she said. “I have a hard time understanding the ‘why’ on this (legislation).”