Guest AuthorIf you follow financial news like I do, you have probably seen recent coverage about payday loans and the problems they pose for our state’s poorest residents.
Payday loans are viewed negatively. More often than not, consumers pay high interest rates and some struggle to repay the loan. Several years ago, I had a brief conversation with a man who told me that he got into a pinch and took out a $300 payday loan. When I asked him how much interest he paid, he said “about $40.”
We continued talking and I asked if he felt that $40 of charges on a $300 payday loan was too much. He looked at me and said, “It was the only way that I could feed my family the next week. I would have paid $100 to feed my family.”
This story is not uncommon and Floridians are not the only ones affected by payday loans. According to The Pew Charitable Trusts, 12 million Americans use payday loans annually because they are often the only source of credit for many of our citizens. It not only helps people who active iva’s in place but also for people looking for quick money in times of emergency.
Often, those who would prohibit or curtail payday loans do not offer solutions that replace that source of credit. Are we protecting our citizens if we eliminate their only source of borrowing?
As Commissioner of the Florida Office of Financial Regulation, I support the concept of payday loans and the protective measures put in place by the Legislature. Some critics of payday loans suggest that increasing access to payday lending services through the United States Postal Service is the solution.
If the postal service offered payday loans in 50 states, ensuring the appropriate parameters and safety of these services would create a regulatory burden — not to mention a heavy cost for citizens.
Throughout history, postal services around the world have done bank business, but the United States is different. Each state has its own laws and policies that govern their banking industry and financial markets.
Should a government agency be in the business of making loans? Would the postal service abide by these state laws and policies? Would each state be responsible for regulating the postal service payday lending? Who would have jurisdiction to investigate complaints?
Implementing such a program would undoubtedly require new laws and regulation at the state and federal levels. In Florida, it takes effort and diligence to make sure payday-lending services are following the law.
The best option is to make certain that protections and safeguards are in place. Through placing a cap on the loan amount and loan fees, allowing only one loan at a time with a maximum 30-day loan period, and requiring a cooling off period between loans, we continue to make Florida’s financial marketplace a safe place to do business.
New bills proposed by Sen. Garrett Richter and Rep. Kenneth Roberson (SB 590 and HB 623) will provide increased protection for consumers by rendering loan transactions uncollectable if made by unauthorized payday lenders.
We promote efficient and effective regulation of Florida’s financial marketplace and protect Floridians and their money through common-sense financial practices.
Drew J. Breakspear is Commissioner of the Florida Office of Financial Regulation. www.flofr.com Courtesy of Context Florida.
