February 23, 2016

After News Stories, Lawmaker Kills High-Interest Loan Bill

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In the wake of news coverage, an Oklahoma lawmaker is pulling a bill that created a new type of loan charging thousands of dollars in interest to Oklahoma’s poorest residents. The bill was an attempt avoid pending federal regulation.

The bill, written by Sen. David Holt, R-Oklahoma City, would have allow companies to lend up to $3,000 to residents with interest capped at 20 percent per month. Interest alone could balloon to at least $6,000 during the life of the loan.

Holt announced on Twitter Tuesday he was pulling the bill because it does not have enough support to pass the Senate.

The lending program, known as a flex loan, is similar to payday loans and critics say it can lead to the same results – an endless cycle of debt.

Holt said members of the payday lending industry approached him about writing the bill, SB 1314, in order to avoid pending federal regulations from the Consumer Financial Protection Bureau.

The industry requests align with his goal of less government regulation of private industry, Holt said.

Similar loans have been seen in Arizona and Tennessee.

Holt agreed the loans are a raw deal for residents, but added the government’s job is not to stop people from making bad decisions.

“I guess one man’s predatory lending is another man’s free market,” Holt said. “If it’s a bad product, it will not succeed.

“I don’t think people should use these products. I certainly won’t use these products.”

Ezekiel Gorrocino, a government relations and policy associate with the Center for Responsible Lending, said it’s telling that the payday loan industry is already looking for a way to avoid federal regulations.

A key part of those regulations requires that lenders check to ensure customers can make the loan payments before giving them money, Gorrocino said. While traditional car loans and mortgages do that, payday loans do not.

Those regulations may be finalized and released by the end of the year.

“The ability to pay is the something you should check before you issue a loan,” Gorrocino said. “The fact they are trying to get out of common sense rules before they are issued shows they want to continue to trap borrows in a cycle of debt.”

That cycle is familiar to many Oklahomans.

Residents take out payday loans at a higher rate than in any other state, according to a 2012 study by the Pew Charitable Trusts. The study also labeled Oklahoma state laws regulating payday loans as “permissive,” allowing for single-payment loans with annual percentage rates of 391 percent or higher.

Residents also often take out multiple loans over the course of a year, sometimes to pay the debt on the first loan.

The amount collected in finance charges and interest is about $50 million annually in Oklahoma.

Gov. Mary Fallin vetoed a bill in 2013 that created “B loans,” which are unsecured short-term loans whose annual interest rates can run up to 141 percent on the average loan amount.

Fallin said at the time that the bill increased predatory lending targeting vulnerable residents.

On Monday, Holt said no one forces Oklahomans to take out payday loans, and allowing flex loans ensures they have options when new federal regulations kick in.

The interest on either loan is exorbitant, but residents need to take responsibility for their own choices, Holt said.

Gorrocino, though, said allowing flex loans does not improve the options for those living in poverty.

“It’s a false sense of choice,” Gorrocino said. “That’s not throwing them a lifesaver. You’re sinking them deeper.”