On Election Day, the voters in Nebraska finally put the last nail on huge interest online payday loans. It was not a move many expected since Nebraska is a Red state with conservative political values such as market deregulations.
The abuse of the deregulation by the lenders was not going to receive a blind eye anymore. On the election day, the voters decided by way of the ballot to limit the interest rates the same day payday loans could charge customers. Time for affordable loans has dawned on Nebraska, and the people have spoken.
The average interest rate on payday in the state of Nebraska was 404%. In fact, this rate is very close to the national average of 400% across all the states in America. Like South Dakota, some states have had to bear with large interest rates culminating at 574% in 2016.
The measure to cap the interest rates was Initiative 428 on the ballot and was passed by 83% of the voters. That is a resounding voice against all forms of loan exploitations in the state. After passing the legislation, Nebraska becomes the 17th state to pass a resolution to cap interest rates. The vote means there is now a cap on annual interest rates charged for delayed deposit services or payday lending.
States like South Dakota, Montana, Colorado, and Ohio have passed a similar measure in the recent past and have experienced success in providing affordable loans to their constituents. Since South Dakota capped the interest rate at 36% during the 2016 US elections, there has been a surge in payday loan alternatives. More people have gotten access to cheaper loans from credit unions, which are capped at 18% and 28% per cent, respectively.
Nebraska will join the rest of the states in curbing the interest rates at 36% to give the people cheaper credit facilities. While the capping will aggrieve many lenders, this measure is a good one towards ensuring more welfare for the people.
Some consumer advisory groups like the Center for Responsible Lending (CRL) seek to have more regulation on the lending industry. The group cites how it’s inherently wrong to have interest rates in the hundreds making it difficult for many to pay back and causing a poverty trap.
The capping is truly historical as it shows that irrespective of political ideology, there is a consensus on both the right and the left to discuss interest rates. The critics who kept dismissing capping of interest rates as a leftist idea have a conservative state stating overwhelmingly that high-interest payday loans are unfair to the people.
There is still a hurdle to be overcome in Nebraska in truly capping the interest rate. Some industry experts have claimed that the ballot measure will make it hard for lenders to operate within the state and therefore move out. In turn, this will limit the credit access to local consumers. They feel that the vote will stifle small-dollar credit within the state while doing nothing to sort out Nebraskans’ financial problems.
It is hard to know if the experts are right in their conclusion on the Nebraska vote. If the same kind of results observed in South Dakota can be replicated in Nebraska; it can be a huge reprieve to Nebraskans.
But sometimes in life, the more things change, the more they stay the same. In 2017, the Consumer Financial Protection Bureau (CFPB) gave a rule requiring payday lenders to determine if a person can pay a loan before advancing the loan. However, in July 2020, the same bureau rescinded the law. Many people argue that it is, in fact, the high-interest rates that lead to a high default rate on payday loans.
Nebraskans have no power over Federal institutions like CFPB but that has not stopped groups like CRL from fighting for better rates through the courts.
Payday loans bad credit direct lenders have been allowed by the Office of the controller of Currency to partner with banks and lend small-dollar loans. Such regulations regulate these payday lenders from the state due to the partnership with National banks.
We must laud the voice and will of the voter in Nebraska to cap payday loans. But there is one thing that is evident that the fight to keep interest rates affordable is not won fully won. Some feel that a federal capping of interest rates in the US would be the only cure to high-interest rates.
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