Flip-flop on predatory loans looms big

Millions of Americans live a financial life much like the proverbial hamster in the wheel. Debt has them spinning their wheels.

This time last year, the average American was dealing with $6,929 of revolving debt. According to the Federal Reserve Bank of St. Louis, the average APR on credit cards was 16.46%. So a cardholder with that average debt at that average interest rate would owe $1,141 in interest at the end of a year.

But it could be worse, and it will be if the federal government gets its way. There is no other type of credit more predatory than the payday loan.

These are generally short-term loans, for between-paycheck needs (or wants) of some of our more destitute people. The deal is often done online, with little or no requirements other than a bank account and a job. The borrower post-dates a check, in most cases for a couple weeks out, and the full amount is then due in full.

A $500 loan can carry with it $75 in interest in two weeks. But that’s not the real hook. Many financial experts agree the business model for payday loans is “the comeback.”

A Consumer Financial Protection Bureau study in 2014 of 12 million similar loans, found 60% went out to borrowers who took out seven or more loans in a row — generally to pay back earlier ones. These folks wound up paying more in interest than they originally received from the loans.

Individual states can impose some regulation on the practice, and Florida is among the better in terms of consumer protection. Here, payday loans are capped at $500 and you’re allowed only one outstanding loan. The loans can’t be made for less than seven days or more than 31. We limit the fee to 10%. We provide a grace period after non–payment and our state limits lenders to lawsuits rather than criminal charges in most cases. We’re lucky.

But the big hit on payday lenders came during the last year of the Obama administration, when a new federal law mandated payday lenders determine a borrower could repay the debt while still meeting living expenses — just like banks are required to do when you apply for credit or a loan.

The potential blow to the industry is incalculable. But two months into her new job as the CFPB’s new director, Trump-appointed Kathleen Kraninger announced plans to remove some of the consumer safeguards, including the ability-to-pay requirement poison pill.

Consumer groups say it could be devastating for low-income Americans, many of whom are paying off loans with disability checks or other federal and state payouts.

Florida is fortunate to have a forward-thinking state in terms of payday loans. But the federal loophole will likely open a spigot, if not a floodgate, of new predatory loans certain to keep those most down on their luck ... down on their luck. It seems an odd turn for an administration so thoroughly in tune with the little guy.