Nebraska lawmakers sparred on Tuesday over a proposal that would allow installment lenders to raise their interest rates to 29% per year.
Omaha Sen. Brett Lindstrom, who introduced LB510, touted the measure as a way to make capital more accessible to Nebraskas with less than perfect credit.
He said these people have limited places to turn to when they need money. Their credit ratings aren’t good enough to get loans from banks and credit unions, while voter approval of a initiative to cap payday loan rates last year led to the closure of many of these businesses in Nebraska.
Installment lenders offer a state-regulated alternative and offer physical locations and personal connections, Lindstrom said. But lenders have struggled to survive against unregulated online lenders.
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He said being able to charge higher interest rates would help them cover the costs of lending money to riskier customers.
Under LB510, installment lenders could charge up to 29% annual interest rate. State law currently caps companies at 24% on the first $1,000 of outstanding balance and 21% on the rest.
But Senator Justin Wayne of Omaha argued the proposal would allow installment lenders to prey on people without good credit records. He pointed out that no consumer had come to ask for the change. The only witness in support of the bill was OneMain Financial, a company offering installment loans.
Other critics include Senator Carol Blood of Bellevue, who called installment loans “cash cows” for lenders and said bankruptcy filings reveal people getting into trouble taking out multiple loans.
Senator Tony Vargas of Omaha said the Legislature doesn’t need to change state law to make a business profitable. He also said federal regulators have raised concerns that states aren’t properly regulating installment loans.
He argued that lenders should be required to consider customers’ ability to repay loans, noting that many customers repay one loan by taking out another, and the default rate rises with interest rates.
Lindstrom introduced a similar bill two years ago, but fell victim to a filibuster organized by former Omaha Sen. Ernie Chambers.
Meanwhile, Nebraskans voted overwhelmingly to put a 36% annual cap on payday loans, also known as cash advances. It is a type of short-term, high-cost loan on which Nebraskanians paid fees equal to an average annual interest of 405% in 2019. They are different from the installment loans at issue in LB510.
Ultimately, lawmakers advanced LB510 to the next round of debate, while supporters and opponents of the bill agreed to see if they could broker a compromise.