Our Florida senators should vote an emphatic ‘no’ on jacked up interest rates
Why would Florida lawmakers consider increasing interest rates on large personal loans at a time when so many Florida families are struggling to get by?
This is the last thing our state needs, and our representatives should vote “no” on SB 580, a bill that would jack up allowable interest rates drastically, in some cases up to double what is currently allowed.
Self-Help Credit Union is a community development institution with nine branches in Florida. We are committed to providing greater access to fair, affordable financing options for underserved communities, including women, low-wealth families, immigrants and communities of color.
These are the same communities that are often preyed upon by high-cost lenders bent on extracting wealth rather than serving financial needs safely and responsibly.
SB 580 would increase allowable interest rates to 36 percent for personal loans up to $25,000, an astronomical rate for such large loans. The repayment on that size loan would be an astounding $54,000. Interest rates on loans of just a few thousand dollars would increase as well. A 36 percent interest rate is simply too high for any loan larger than a few hundred dollars.
The lenders pushing for this change certainly do not have a reputation for serving their customers well. In fact, they have made a practice of slipping in add-on products that don’t benefit the borrower but increase the amount owed, keeping borrowers indebted for years.
The Center for Responsible Lending (CRL) analyzed court cases in Colorado for defaulted loans made by the same lenders pushing this proposal in Florida. There were disturbing levels of add-on products that increase the debt load for the borrower, sometimes to extreme levels, but do not provide much benefit.
Imagine taking a high-cost loan of $10,000 and finding that the automobile club memberships and insurance policies pushed on increased the amount owed by another $5,000, as CRL found in one egregious case. And then imagine finding out that the insurance policy–that you paid for as the borrower!–benefits only the lender in case of default. The very companies asking for this increase routinely add on multiple insurance policies to the same loan. This is not even close to responsible lending.
Borrowers have little hope of comparing the cost of this type of loan to other options, especially when the lenders fail to disclose the true cost of credit by excluding add-on products in their stated APR calculations.
The upshot is that these high-cost loans with upsold add-ons can keep borrowers in unaffordable debt for years. Rather than support this legislation, our lawmakers should be scrutinizing this type of lending and making sure Florida citizens are not being harmed by unscrupulous practices.
Raising interest rates on these problematic loans is the last thing our hardworking Florida families need as they seek financial and economic security.
Adner Marcelin is City Executive with Self-Help Credit Union.