Nebraska has become the latest state to cap interest rates on payday loans that consumer activists say are exorbitant and predatory.
In Tuesday’s election, roughly 83% of Nebraska voters approved Initiative 428, which puts a 36% annual limit on the interest payday lenders can charge.
Previously, the average interest rate for a payday loan in Nebraska was 404%, according to the Nebraskans for Responsible Lending coalition, which helped get the initiative on the ballot.
With the passage of the measure, Nebraska joins 16 other states and Washington, D.C., in imposing restrictions on payday loan interest rates and fees, according to the ACLU.
“This is a huge victory for Nebraska consumers and the fight for achieving economic and racial justice,” Ronald Newman, national political director at the ACLU, said in a statement. “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.”
Currently in Nebraska, payday loans are limited to $500, to be repaid within 34 days, and lenders can charge fees up to $15 per $100 loan. Initiative 428 drops the fee to just $1.38 and applies to lenders regardless of whether they have a physical presence in Nebraska, meaning that online lenders would be restricted to the same interest rate cap.
Opponents of the measure claimed it would put short-term lenders out of business and encourage unregulated lending but supporters said interest rates were exorbitant and preyed on poor people.
“Now all Nebraskans will have better access to credit that is fair and reasonable,” Kate Wolfe, campaign manager for the petition, told the Omaha World-Herald.
The federal government has been encouraging banks to offer low-cost, short-term loans to provide an alternative to expensive payday loans.
“Low-cost lending programs from banks could put pressure on payday lenders to reduce their fees. And adding one more state to the slowly growing group that cap payday lending rates could spur additional states to reexamine their payday loan legislation — or lack thereof,” Forbes said.