Banking Commerce and Insurance

Installment loan interest rate increase advances

Lawmakers gave first-round approval March 2 to a bill that would increase the interest rate that licensees may charge under the Nebraska Installment Loan Act.

Sen. Brett Lindstrom
Sen. Brett Lindstrom

Currently, a licensee may charge a borrower a maximum annual interest rate of 24 percent on the first $1,000 of an unpaid principal balance, and 21 percent on the remaining unpaid balance.

LB510, introduced by Omaha Sen. Brett Lindstrom, would raise the cap to a single rate of 29 percent annually. The bill also would increase the annual license renewal fee paid by installment loan licensees from $250 to $500.

Lindstrom said the interest rate cap has not increased since 1984 and consumers are choosing online lenders that are unregulated. Brick-and-mortar lenders need to survive, he said, because they are able to work with borrowers to understand their loans and help improve their credit in order to receive better interest rates in the future.

“This [bill] does not mean that every loan would be charged 29 percent,” Lindstrom said. “It broadens the range of borrowers the bank or lender can serve. I always like to make sure that individuals can access Nebraska businesses versus going online where they’re not regulated.”

Sen. Matt Williams of Gothenburg supported the bill, which he said is necessary to serve both the installment loan industry and consumers. When voters chose to limit the interest rate cap on pay day lenders in 2020, they eliminated an important source of capital for borrowers, he said.

“What we thought was going to happen following the vote of the people on pay day lending is exactly what did happen,” Williams said. “We have eliminated that industry in our state.”

Omaha Sen. Justin Wayne opposed the bill and offered a motion to recommit LB510 to the Banking, Commerce and Insurance Committee. He said raising the interest cap on installment loans so soon after voters chose to constrain the pay day lending industry in Nebraska would be “premature.”

“No consumer is actually asking for this — it’s the lending industry that’s asking for this,” Wayne said. “This is a way for those who don’t have the best credit to get preyed upon.”

Omaha Sen. John Cavanaugh referenced financial statements reported by a Nebraska installment loan company. He said they’ve reported profits of $183 million in 2017, $447 million in 2018 and $855 million in 2019.

“The rate at which their profits are increasing — I’d say that’s more than doubling — does not demonstrate an industry that is struggling and that needs further expansion in their ability to increase their rates,” Cavanaugh said.

Following Lindstrom’s offer to work with opponents before the next round of debate, senators voted 11-28 on Wayne’s motion. LB510 then advanced to select file on a 27-9 vote.

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