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Today, payday lenders in Florida are more commonplace than Starbucks and charge an average 278 percent annual percentage rate (APR), according to the Center for Responsible Lending. (Photo: Thomas Hawk/flickr/cc)

No, Debbie Wasserman Schultz, Florida's Payday Law Doesn't Rein in Loan Sharks

"Federal regulation designed after Florida's payday law would continue to line the pockets of payday lenders with borrowers' hard-earned wages"

Deirdre Fulton

The Florida law being held up by Democratic National Committee chair and U.S. Rep. Debbie Wasserman Schultz as a model for the pending national crackdown on predatory payday lenders has in fact drained "millions in fees from those that can least afford it"—perpetuating the debt cycle rather than preventing it, according to a new study.

The findings, revealed late last week by the Center for Responsible Lending (CRL), indicate that under Florida's "lender-designed" law, payday loan stores have flourished, extracting a whopping $2.5 billion in fees from Sunshine State borrowers since 2005.

"Federal regulation designed after Florida's payday law would continue to line the pockets of payday lenders with borrowers' hard-earned wages."
—Marisabel Torres, National Council of LaRaza

Today, payday lenders in Florida are more commonplace than Starbucks and charge an average 278 percent annual percentage rate (APR), the report states.

What's more, the high-interest industry is targeting Florida's Black and Latino communities, as well as senior borrowers age 65 or older, the CRL analysis found. "With 83 percent of payday loans going to people stuck in seven or more loans per year, it's easy to see how Florida's law is failing consumers," said Brandon Coleman, co-author of the report and a CRL policy counsel.

All this suggests that Florida's "regulations" do little to rein in payday lending or its ramifications.

Still, Wasserman Schultz insists "Florida's model and experience can be instructive" to the Consumer Financial Protection Bureau (CFPB) as it considers its national rulemaking, as the six-term congresswoman's communications director recently told the Miami Herald

Advocates disagree. "Federal regulation designed after Florida's payday law would continue to line the pockets of payday lenders with borrowers' hard-earned wages," said Marisabel Torres, senior policy analyst at the National Council of LaRaza, last week. "Struggling communities and minority borrowers cannot afford to be targeted with products that are designed to drain their wealth. We need a strong payday rule that will end the debt trap once and for all."

To that end, a coalition of 200 national advocacy organizations on Tuesday sent a letter to Wasserman Schultz, beseeching her to withdraw her co-sponsorship of the "Consumer Protection and Choice Act," which would delay the CFPB payday lending rules for two years and then permanently block them in any state that enacts a regulatory system similar to the one that currently exists in Florida.

Saying that bill "represents a troubling attack on the ability of the CFPB to do its job," the letter reads in part:

Regardless of the motives behind the 2001 compromise on payday lending in Florida, it is clear that the law has failed to eliminate the fundamental problem: lenders verify that borrowers have a source of income that can be used to repay loans, but they do not verify that borrowers can afford to repay their loans while still meeting their other financial obligations such as rent, food, and utilities. As a result, borrowers all too often get stuck in a vicious debt trap, in which they have little choice but to take out additional loans to make ends meet. This often results in the long-term “churning” of loans that generate additional fees for lenders but which cause borrowers to fall even deeper into financial distress.

[...] This is hardly a model for other states to follow, and it certainly does not justify overriding the CFPB's upcoming rulemaking in this area.

Wasserman Schultz's primary challenger, Tim Canova, has seized on his opponent's support for—and from—the payday lending industry, writing earlier this month:

Not only is Wasserman Schultz carrying water for an industry that is actively defrauding poor communities out of millions of dollars—one company recently was forced to give $19 million dollars back to customers in illegal overcharge payments—but she is actively convincing Democrats in Congress to do so as well. Which party does she lead again?

The attacks appear to be making the Democratic Party leader nervous.

The Intercept noted on Tuesday that Wasserman Schultz's campaign trotted out an early endorsement this week from President Barack Obama. "Obama very rarely involves himself in House primaries," reporter David Dayen pointed out. "That he felt the need to endorse Wasserman Schultz suggests that Canova's message is gaining traction in her district."

The CFPB is expected to issue its proposed payday regulations this spring or summer.

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