A payday lender storefront in Miami, Florida. Author’s photo
When Jon Gomez needed some quick cash to fix a cooling fan in his 2007 Toyota, the 38-year-old delivery driver relied on a popular financial service offered by Amscot — The Money Superstore. The Cuban-American said he took out a $ 400 payday loan at one of their offices in Hialeah, Florida, where he lives.
To get the four Benjamins, all Gomez had to do was prove employment and write a personal check from a valid bank account post-dated by 14 days, by which time he was due to receive his next paycheck. He agreed to reimburse the full amount, plus a finance charge of $ 41, Gomez recalls.
“I paid off the $ 441, but the next day I took out another $ 400 payday loan because I needed the money,” he told VICE. “I was in this vicious cycle for three months.”
It got to a point that the man didn’t have enough money to cover one of his payday loan checks, and he bounced back. Under Florida law, Gomez cannot get another payday loan until he has paid the outstanding balance. “It turned out to be a blessing in disguise,” he recalls. “I’m not going to go into debt like this anymore.”
Gomez is among tens of thousands of cash-strapped Floridians whose financial misery has helped payday lenders like Amscot to rake in billions over the past decade, according to to a study released last week of payday loan transactions in the state between September 2005 and May 2015. The report was developed by the Center for Responsible Lending, a consumer advocacy organization for low-income people, as well as the La Raza National Council, the Florida Alliance for Consumer Protection, and Latino Leadership Inc, an Orlando-based nonprofit agency. Critics say payday lenders are preying on poor African Americans and Latinos in an era of spiraling income inequality – and despite a state law that supposedly already controls the industry.
“Many of these businesses thrive by taking advantage of the [financial] situation, ”Marisabel Torres, senior policy analyst for the National Council, said in a press conference call last week. “The data really shows us that Florida consumers are not protected from these harmful products. “
The findings were released at a critical time for the payday lending industry: the Consumer Financial Protection Bureau (CFPB), the federal agency responsible for regulating financial products used by normal people (read: not rich bankers), is about to issue new rules designed to tackle the debt trap created by excessive payday lending. But Dennis Ross, a member of the US Congress from North Florida, proposed a bill it would delay the new bureau rules by two years and give states that already have payday loan laws a lot of leeway to do their thing. The bill is supported by a generous portion of the Florida congressional delegation, some of whom were state lawmakers in 2001, when Florida’s law setting restrictions on payday loans was passed.
“This legislation would limit the bureau’s ability to protect consumers from high-cost payday loans,” Torres said on the appeal. “This would allow the industry to avoid any federal regulation.”
Executives at some of the largest payday loan providers in Florida, of course, believe the state is already doing a good job of regulating their operations. “They are suggesting state law has not worked,” Amscot CEO Ian Mackechnie told me. “I disagree with that. Over the past fifteen years it has proven to be a success.”
A spokeswoman for Congressman Ross did not respond to a phone message and a pair of email requests for comment. And Sean Bartlett, spokesperson for MP Debbie Wasserman Schultz, claimed that the state had succeeded in reigning in the payday lending industry in 2001, while preserving access to credit for working families who have it. need, ”Bartlett said in a statement on behalf of MP Wasserman Schultz. “Its objective has been and remains to balance access to capital while protecting consumers.”
Under Florida law, every lender must enter every payday loan transaction into a database maintained by the state’s Office of Financial Regulation. (A spokeswoman for the financial office declined to comment on the critical report.) Companies like Amscot, which operates only in Florida, may only grant loans up to $ 500 and are only allowed to add finance charges. A borrower can repay the money within 24 hours without penalty, and if a borrower cannot repay the money after 14 days, they are entitled to a 60-day grace period that includes meeting with a financial advisor. , which helps to establish a repayment plan. Also, if a person has an outstanding payday loan, the borrower cannot take out a new loan from another lender.
“The first thing we do is check to see if a person has an open transaction,” Mackechnie said. “It’s a mechanism that keeps people from going from loan store to loan store to take out multiple loans and having to go crazy.”
The problem is, the mechanism isn’t working, according to Delvin Davis, senior research analyst for the Center for Responsible Lending. His store obtained payday loan records for the ten-year period beginning in 2005 by submitting a public record request to the Florida Financial Regulatory Office. Now, Davis said his team’s analysis shows that 83% of the state’s payday loan transactions were generated by borrowers who took out seven or more loans in a one-year period. The average loan amount in 2015 was $ 399.35 and the average finance charge was $ 42.73, according to the report.
Davis argued that taking out a new payday loan simply covers a budget deficit caused by a previous loan. “In other words, payday loans do not ease the financial burden,” he said on the call. “They create new financial emergencies every two weeks.”
This business model has allowed payday loan providers to grow exponentially, according to Davis, who notes that there are 1,100 stores offering the service in Florida, nearly double the number of Starbucks stores in the Sunshine State. The annual payroll transaction volume increased from $ 1.73 billion in 2005 to $ 3.13 billion in 2015, according to the report, and during the same period, the total annual fees collected by payroll companies. payday loan went from $ 186.5 million to $ 311 million.
Mackechnie of Amscot conceded that payday loans have contributed significantly to the growth of his business, from 18 locations in the Tampa area in 2001 to 241 across Florida today. “It’s a little over half of our business,” he told me. “In terms of volume, small loans represent approximately $ 1.5 billion of our total transactions annually.”
But the report’s authors determined the addresses of each payday loan location in Jacksonville, Miami, Orlando, and Tampa, and found that a majority are concentrated in African American and Latin American communities.
“Neighborhoods where more than fifty percent of the population is black or Latino, you have concentrations of payday loan stores twice as high as neighborhoods where less than twenty-five percent of the population is black or Latino.” said Davis. “Additionally, low-income communities that are eighty percent below Florida’s median income level have four times the concentration of payday loan stores than communities that are 120 percent below Florida’s median income level. above the median income level. “
Jamie Fulmer, vice president of public affairs at Advance America, one of the nation’s largest payday loan providers, disputes all of this. “Payday lenders, like many other businesses, are moving into the population centers where our customers live, work and shop,” he told VICE. “Our clients are middle-income and educated, and appreciate the simplicity, reliability and transparency of loans; a recent national survey found that more than nine in ten borrowers believe payday loans are a good option when faced with a shortfall. “
Fulmer also quotes recent studies find the payday loan industry provides a valuable service to consumers. For example, the industry trade group Community Financial Services Association of America commissioned a national survey than 1,000 payday loan borrowers, including 621 African Americans and Latinos, in January. Results show that “nine out of ten borrowers agree that payday loans can be a smart move when consumers are faced with unexpected expenses” and that 60% of borrowers “think payday loans are fair price for value they offer ”.
But Floridians who have been in the thick of it believe government officials need to do more to crack down on predation by payday loan companies. Lawyers say the simplest and most obvious fixes, as proposed in the CFPB’s draft rules, would place limits on how often you borrow. And new loans should be tied to the borrower’s ability to repay them, without getting stuck in a whirlwind of new loans.
“I know other people in the same boat,” Gomez said. “Without regulations that really protect people, we’re not going to see progress.”
Follow Francisco Alvarado on Twitter.