Support interest rate cap on predatory lending
On Sept. 26, the Florida faith community, led by Bishop A.J. Richardson, Presiding Prelate of the 11th Episcopal District of AME churches, held a press conference at the Florida Capitol to announce that a proposal had been submitted to the Florida Constitutional Revision Commission on Sept. 22 to cap loan rates at 30 percent per annum. This action was in response to the devastating effect of predatory loans on low-income and other vulnerable Floridians. These lenders prey on borrowers with financial emergencies and poor credit who have no other options available to them to address the financial emergency; often charging interest rates and fees up to 300 percent. The statement calling for the Commission to place Public Proposal 700555 on the 2018 Florida ballot notes, “Predatory lending leaves its victims with significant trauma, making desperate people destitute”. The Florida Council of Churches also issued a statement in support, as follows.
“Floridians need lending protection so that our families can thrive and the economy can prosper.
We need a constitutional guarantee that ends lending exploitation.”
In addition to Florida’s faith leaders, the cap is supported by Floridians for Responsible Lending, a statewide coalition of over 30 organizations that include consumer protection, civil rights, legal services, and other advocacy organizations committed to equal justice and financial fairness for the poor.
Redlining, a discriminatory lending practice prevalent among certain banks and mortgage companies created a banking scandal decades ago that is described in chapter 8 of my book, POVERTY, POLITICS, and RACE in AMERICA. Redlining was the practice of denying services, either directly or by selectively increasing the price, to residents of certain areas based on the racial or ethnic composition of the area. Even minorities with good credit and qualifying income were denied loans, while White applicants with lower credit scores and income were approved. Court challenges on behalf of minority applicants ended these discriminatory practices. Then in 2000, subprime mortgages became popular financial tools for some banks and mortgage brokers. Subprime mortgage loans targeted buyers with bad credit for loans with very high usury and adjustable, instead of fixed, interest rates. This allowed the interest to continually increase, thereby causing the cost of the mortgage to escalate far beyond the value of the home and the homeowner’s ability to pay; often resulting in foreclosure. These subprime companies were becoming rich on the suffering of those who were fast talked into loans too good to be true, and actually were. Wells Fargo, Bank of America and its subsidiary, Countrywide Mortgage Corporation, were determined to be among the biggest subprime offenders, and paid heavy penalties. The federal government brought criminal cases against CEOs of these companies, eventually reaching settlements of up to $67 million.
Subprime mortgages by those banking institutions certainly qualified under the definition of predatory loans. However, the consumer loans most commonly referred to as predatory lending are payday loans, title loans, and refund anticipation loans. Today, the interest rate and fees allowed on these loans under current state law can be as high as 300 percent, creating a devastating cycle of debt for those unable to meet repayment terms of these supposed short-term financial obligations. Low-income borrowers literally become trapped, without understanding that they will end up owing two to three times more than the amount they originally borrowed.
Much has been done over the years to protect consumers, including the federal consumer protection agency promoted by Senator Elizabeth Warren and created by President Obama, to protect against unjustified fees and high interest rates on credit cards and other financial matters regulated by the federal government. There are many local non-profits that provide housing counseling, assistance with credit repair, and first time home buyer workshops to assist low-income residents create financial stability. The Internal Revenue Service’s Volunteer Income Tax Assistance (VITA) Program partners with community based agencies to provide free tax preparation and electronic filing at multiple locations, making costly refund anticipation loans unnecessary and unwise. Many of the same community-based organizations, also, provide financial literacy/ education workshops to help residents with tools to avoid the predatory lending black hole.
Lives and families are being destroyed by the high lending rates allowed in Florida. For that reason, it is a major priority that Florida residents act to protect their own financial interests by supporting the ballot initiative introduced by Bishop Richardson, Florida faith leaders, civil rights, and family advocates throughout the state. Sign petitions to get the referendum on the ballot. Then, vote in 2018 to cap the interest rate for predatory loans at a maximum 30 percent rate.
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