Payday Loan Times

The 2001 state law that reformed the Florida payday loan lending business in the state is being ignored by some of the companies it was designed to regulate.

In skirting the reforms, those companies still make paycheck-advance loans with annual percentage rates that exceed 400 percent to 700 percent. And financially strapped customers who can’t pay on time are repeatedly allowed to refinance their debt, in apparent violation of the law.

Some of these companies argue that they aren’t subject to the Florida rules because they peddle cash loans from outside the state via the Internet. Others operate from local storefronts but say they are exempt from the law and governed instead by other state statutes.

“The Florida law has been around long enough that many lenders have figured a way to get around it,” said Lynn Drysdale, a Jacksonville consumer-advocacy lawyer. “You have to have a law that prevents these kinds of disguises to circumvent consumer protections.”

The 2001 reforms, signed into law by then-Gov. Jeb Bush, limit fast payday loans to $500, with terms not to exceed 30 days. “Rollovers,” or refinancings of an unpaid loan, are banned, and borrowers can hold only one loan at a time. If a customer can’t pay off the debt when it comes due, the law mandates credit counseling and a repayment plan.

Most importantly, the law limits how much lenders can charge for a payday loan, though the rates are still high by conventional measures. A typical customer can’t be charged more than $55 for a two-week, $500 loan. That’s $10 for every $100 borrowed plus a $5 “verification fee.”

But take out a no fax payday loan from any Cash America or EZMoney store in Florida and you will be charged far more than that. And if you can’t pay it off, you may be allowed to refinance the balance again and again, with late fees and other charges added.

Consumer groups point out that even the legally allowed charges in Florida translate to an annual percentage rate of 260 percent for a $500 loan held for two weeks (the typical term for a paycheck advance).

The APRs for loans at Cash America, EZMoney and Sonic are even higher, ranging from 468 percent to 702 percent - or even more if the loan is renewed and the usual fees are added to the balance due.

Payday advance lenders argue that discussing triple-digit annual percentage rates is unfair, because their cash advances are short-term financial instruments, not yearlong loans. But consumer advocates counter that some customers, unable to make it to their next payday time and time again, become serial users of paycheck advances and fall into just such a “debt trap.”

‘Very regulated industry’
Florida’s 2001 law was a compromise measure designed to rein in annual percentage rates that, at the time, were topping 1,000 percent when all the various charges were figured in. The law’s supporters say it has done much to deter abusive lending practices and bring some order to a cash advance loan industry viewed by some at the time as out of control.

According to state Sen. Lee Constantine, the law’s lead author, the rate of payday-loan defaults has fallen from about 40 percent before the reforms to less than 5 percent now.

“It has worked incredibly well,” said Constantine, a Republican from Altamonte Springs. “Now we have a very regulated industry, where the vast majority of companies are responsible and compliant. What we have in Florida is far and away the toughest law in the nation.”

A majority of check cash advance lenders in Florida - including Advance America of Spartanburg, S.C., and Tampa-based Amscot Financial Inc. - comply with Florida’s law, according to state regulators who monitor a transactions database created by the 2001 law.

“Most of these lenders are conscientious about toeing the line,” said Mike Ramsden, an administrator with the state Office of Financial Regulation.

Certain lenders say they consider Florida’s law a model for the industry.

“We believe what Florida legislators have developed is good, strong, pro-consumer legislation that governs this industry,” said Ian MacKechnie, Amscot’s president. “We’re a highly regulated industry, and we are committed to what we consider industry ‘best practices’ that payday lenders in all states should follow.”

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