Nebraska Voters Choose To Limit Payday Loan Interest Rates

Rachel Morey
Last Update: February 13, 2021 Financial News

Nebraska residents voted in favor of capping payday loan interest rates at 36% per year on Tuesday. These high-cost and predatory loans aren’t currently controlled at the federal level, which leaves each state to fend for itself.

Measure 428, the Payday Lender Interest Rate Cap Initiative, was approved by 83% of Nebraska voters. The state joins 17 other states that impose restrictions on interest rates and fees associated with expensive payday loans.

“This is a huge victory for Nebraska consumers and the fight for achieving economic and racial justice; predatory payday lending makes racial inequalities in the economy even worse — these lenders disproportionately target people of color, trapping them in a cycle of debt and making it impossible for them to build wealth.” – Ronald Newman, ACLU National Political Director

In Nebraska, the current average interest rate for a payday loan is 404%. Lenders were allowed to charge as much as $15 for every $100-worth of payday loans. Borrowers can initiate a payday loan of as much as $500.

Payday loans are allowed in 37 states.

Here’s how some states restrict payday loans:

  • South Dakota: Interest rates capped at 36% annually.
  • Ohio: Loan amounts, duration of the loan, and interest rates heavily restricted.
  • New Hampshire: Interest rates capped at 36% annually.

Payday loans are prohibited in Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, New Mexico, Pennsylvania, Vermont, and West Virginia.

Payday Loan Federal Legislation Stalled

The Veterans and Consumers Fair Credit Act, introduced at the federal level in November 2019, would cap payday loan interest rates at 36% annually at the federal level, eliminating the need for individual states to take action to protect their citizens.

The bill has Democrat and Republican co-sponsors but is currently stuck. It is a spin-off of the 2006 Military Lending Act, which caps loans for active-duty service members at 36% annually.

Getting a payday loan is quick and easy in states where it’s legal. A borrower provides the payday lender with a valid ID, bank account number, and income proof. The lender uses the borrower’s income to calculate the amount of money they’ll lend. These high-interest and high-fee loans are difficult to pay back for economically disadvantaged borrowers, who may already have low income and problems paying their recurring bills.

Payday Loans Cause Debt Spiral For Borrowers

Borrowers often have to find additional income to get out of the debt-spiral caused by taking out even one small payday loan. Borrowers pay back their payday loan debt by writing a check or authorizing a direct debit from their checking account for the same day they get paid (in the future). Since there’s no opportunity to skip out on the debt, payday lenders approve this type of loan without conducting a credit check.

“There is just something wrong with triple-digit interest rates and trapping people in cycles of debt.” -Ashley Harrington, Federal Advocacy Director, Center for Responsible Lending

Until 2017, the Consumer Financial Protection Bureau mandated that payday lenders must decide whether a borrower has the financial means to repay the loan before offering them money. That rule was rescinded in July of 2020.


Rachel Morey

Rachel Morey is a journalist specializing in automotive, insurance, and finance content. She has been writing professionally for nearly a decade and has projects in print and broadcasting. A native Iowan, Rachel as a special fondness for the open roads of rural America.

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