Payday Lending Reform Bill Introduced by Senators Vargas and Linehan

Senator Tony Vargas and Senator Lou Ann Linehan today announced the introduction of LB 194, a bill that will cap interest rates and fees and extend the length of loans for payday borrowers.

“Until now, payday lenders have been able to charge customers upwards of 400% interest, trapping families facing a minor financial crisis in a cycle of debt. This bill protects consumers, maintains access to credit, and still allows payday lenders to operate and profit in Nebraska,” said Senator Vargas, District 7. “Just as importantly, these regulations will put millions of dollars back into the hands of consumers and our local economy.”

Senator Lou Ann Linehan, District 39, said, “Payday lenders serve an important purpose, providing access to credit for Nebraskans who need it. Reasonable regulation of lending institution services is in everyone’s interest.”

The proposed reform aligns payday loans more closely with a traditional loan structure by capping the interest rates and fees, as well as the monthly payment amount requirements.

LB 194 includes:
• Maximum monthly payments set at 5 percent of a borrower’s gross monthly income
• Interest charges of 36 percent per annum with a maintenance fee proportional to the size of the loan, not to exceed $20 per month
• Maximum allowable charges of 50 percent of principal over life of the loan with no limits on the duration of the loan allowing lenders some flexibility on loan terms
• Maintains $500 loan limit that is currently in place
• Spreads costs evenly over time with principal, interest and fees precomputed into equal and affordable monthly payments

“Research shows that the majority of borrowers are women between the ages of 25-44. When caught in the payday lending trap, women and their families can lose a substantial portion of what income they have, resulting in hardship for their families,” said Traci Bruckner, Research and Policy Director of the Women’s Fund of Omaha. “We have a broad-based coalition, including Nebraska Appleseed, Voices for Children, the AARP, Habitat for Humanity of Omaha, borrowers and others who are working to ensure payday loans include basic consumer protections to prevent borrowers from being trapped in a cycle of debt.”

“We welcome this bill as a long-overdue measure of real reform to stop predatory lending from trapping hard-working Nebraskans in a cycle of debt,” said Nebraska Appleseed Economic Justice Director James Goddard. “This bill will ensure that lenders serve their customers with fair terms like reasonable interest rates and manageable repayment plans like in our neighboring states. This will allow customers to preserve access to credit while still being able to pay for other important things like housing, groceries and bills.”

LB 194 is based on compromise legislation enacted in Colorado in 2010. Data demonstrates that the Colorado law is working. Colorado borrowers save approximately $40 million per year after reform – money back in the hands of the state’s consumer.

Join us as we help to reform payday lending in Nebraska: