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Bill Aims to Break Cycle of Payday Lending Debt

Nebraska lawmakers will consider a measure that caps interest rates on payday loans at 36 percent.(Taber Andrew Bain/Flickr)
Nebraska lawmakers will consider a measure that caps interest rates on payday loans at 36 percent.
(Taber Andrew Bain/Flickr)
January 11, 2017

LINCOLN, Neb. – There's a new effort in Nebraska to break the cycle of debt that can trap borrowers in payday loans. Senators Lou Ann Linehan and Tony Vargas introduced legislation (LB 194) on Tuesday that aligns payday loans more closely with a traditional loan structure.

Vargas says folks turn to these loans when they have a car repair or other emergency and don't have cash on hand. But with interest rates that can top 400 percent, he says payday loans compound a family's budget challenges and leave people looking to borrow more.

"That cycle of 'a loan to pay a loan' is extremely typical in these instances, and that creates a cycle of debt," he explained. "And we have one instance where a $500 loan turned into over eight years at a $10,000 amount of money they had to pay back."

The bill caps interest rates at 36 percent and requires lenders to offer more affordable payments by setting a maximum monthly payment at five percent of a borrower's gross monthly income.

Senator Linehan contends the legislation contains reasonable restrictions that will allow payday lenders to still make a profit by charging higher rates and forgoing traditional underwriting functions. But she notes it will also level the playing field.

"It makes no sense that we have our banks regulated and then, we have the payday lending people, who are under no regulations," she said. "They can still make money, and they should, if they're in business, but we don't want to get the people who need to use them for credit never to be able to get out of the hole."

Traci Bruckner, the research and policy director of the Women's Fund of Omaha says a broad coalition has been working on the issue of payday lending for years, and is excited to have the bipartisan support of Vargas, a Democrat, and Linehan, a Republican. She encourages Nebraskans to get involved in the public debate.

"We're going to need all the voices we can muster to make sure we can get this through committee and on the floor, and then passed through the full legislature," said Bruckner.

A statewide survey by AARP Nebraska found more than three in four residents support the lower, 36 percent interest-rate cap on payday loans.

Mary Kuhlman/Shaine Smith, Public News Service - NE