A payday lender storefront in Miami, Florida. Photo of the author
When Jon Gomez needed quick cash to fix a cooling fan in his 2007 Toyota, the 38-year-old delivery driver turned to 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 locations in Hialeah, Florida, where he lives.
To get the four Benjamins, all Gomez had to do was prove his employment and issue a personal check from a valid bank account post-dated 14 days, when he was due to receive his next paycheck. He agreed to repay the full amount, plus a $41 finance charge, Gomez recalled.
“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 where the man didn’t have enough money left to cover one of his payday loan checks, and it bounced back. Under Florida law, Gomez can’t get another payday loan until he pays off the outstanding balance. “It turned out to be a blessing in disguise,” he recalls. “I won’t go into debt like this again.”
Gomez is one of tens of thousands of cash-strapped Floridians whose financial misery has helped payday lenders like Amscot 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 assembled 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 at a time of growing income inequality — and despite state law that already controls the industry.
“A lot of these businesses thrive on taking advantage of the [financial] situation,” Marisabel Torres, senior political analyst for the National Council, said in a conference call with the press 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 loan industry: the Consumer Financial Protection Bureau (CFPB), the federal agency charged with regulating financial products used by normal people (read: not the rich bankers), is set to release new rules designed to tackle the debt trap created by excessive payday lending. But Dennis Ross, a US congressman from North Florida, proposed a bill it would delay the bureau’s new rules for two years and give states that already have payday loan laws wide leeway to do their job. The bill is backed by a generous slice of Florida’s 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 call. “It would allow the industry to avoid federal regulation altogether.”
The executives of some of Florida’s biggest payday loan providers, of course, think the state is already doing a great job of regulating their businesses. “They suggest state law hasn’t worked,” Amscot CEO Ian Mackechnie told me. “I don’t agree 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, spokesman for Congresswoman Debbie Wasserman Schultz, said the state managed to reign in the payday loan industry in 2001 while preserving access to credit for working families who depend on it. need,” Bartlett said in a statement on behalf of Congresswoman Wasserman Schultz. “Its goal 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, can only give loans up to $500 and are only authorized to transfer finance charges. A borrower can return the money within 24 hours without penalty, and if a borrower cannot return the money after 14 days, they are entitled to a 60-day grace period which includes a meeting with a financial advisor , which helps to establish a repayment plan. Also, if a person has an outstanding personal loan, the borrower cannot take out a new loan from another lender.
“The first thing we do is check if someone has an open trade,” Mackechnie said. “It’s a mechanism that prevents people from going from one loan store to another to take out multiple loans and get in over their heads.”
The problem is that 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 records request to the Florida Office of Financial Regulation. Now, Davis said his team’s analysis shows that 83% of state payday loan transactions were generated by borrowers who had taken out seven or more loans over a one-year period. The average loan size 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 shortfall caused by a previous loan. “In other words, payday loans don’t ease financial burdens,” 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 locations in the Sunshine State. The annual volume of payday transactions 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.
Amscot’s Mackechnie has made payday loans a significant part of the growth of its business, which has grown from 18 locations in the Tampa area in 2001 to 241 throughout Florida today. “It’s a little over half of our business,” he told me. “In terms of volume, small dollar loans represent approximately $1.5 billion of our total transactions annually.”
But the report’s authors determined the addresses of every payday loan location in Jacksonville, Miami, Orlando and Tampa, and found that a majority are concentrated in African American and Latino communities.
“In neighborhoods where more than fifty percent of the population is black or Latino, you have concentrations of payday loan stores that are twice as large as neighborhoods where less than twenty-five percent of the population is black. or Latino,” Davis said. “Additionally, low-income communities that are eighty percent below Florida’s median income level have four times as many payday loan stores as communities that are one hundred and twenty percent above. of the median income level.
Jamie Fulmer, vice president of public affairs for Advance America, one of the nation’s largest payday loan providers, disputes all that. “Payday lenders, like many other businesses, locate in population centers where our customers live, work and shop,” he told VICE. “Our customers 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 think payday loans are a smart option when they are faced with a shortfall.”
Fulmer also cites recent studies finding 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 borrowers, including 621 African Americans and Latinos, in January. The results show that “nine in ten borrowers agree that payday loans can be a smart move when consumers are faced with unexpected expenses” and that 60% of borrowers “believe payday loans are fairly priced for the 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. Proponents say the simplest and most obvious solutions, as proposed in the draft CFPB rules, would impose limits on the frequency of borrowing. And new loans should be tied to the borrower’s ability to repay, without getting stuck in a whirlwind of new loans.
“I know other people in the same boat,” Gomez said. “Without regulation that really protects people, we’re not going to see progress.”
Follow Francisco Alvarado on Twitter.