Inside the Battle Over Florida's Racially-Charged Payday Loan Racket

When Jon Gomez needed some quick cash to fix a cooling fan in his 2007 Toyota, the 38-year-old delivery driver relied on 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 employment and write out a personal check from a valid bank account post-dated by 14 days, at which time he was set to receive his next paycheck. He agreed to pay back the full amount, plus a $41 finance charge, Gomez recalls.

"I paid back 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 that the man didn't have enough money to cover one of his payday loan checks, and it bounced. Under Florida law, Gomez cannot obtain another payday loan until he settles the outstanding one. "That turned out to be a blessing in disguise," he recalls. "I won't put myself in debt like that again."

Gomez is among the tens of thousands of cash-strapped Floridians whose financial misery has helped payday lenders like Amscot rake in billions over the last decade, according to a study released last week looking at payday loan transactions in the state between September 2005 through May 2015. The report was assembled by the Center for Responsible Lending, a consumer advocacy organization for low-income people, as well as the National Council of La Raza, the Florida Alliance for Consumer Protection, and Latino Leadership Inc, a nonprofit agency based in Orlando. Critics say payday lenders are preying on poor African Americans and Latinos in an era of spiraling income inequality—and in spite of a state law that supposedly already controls the industry.

"A lot of these businesses are flourishing by taking advantage of people's [financial] situation," Marisabel Torres, the National Council's senior policy analyst, said on a conference call with press last week. "The data really shows us that Florida consumers are not being protected from these harmful products."

The findings were released at a critical moment for the payday loan industry: The Consumer Financial Protection Bureau (CFPB), the federal agency tasked with regulating financial products used by normal people (read: not rich bankers), is set to issue new rules designed to crackdown on the debt trap created by excessive payday loans. But Dennis Ross, a US congressman from northern Florida, has proposed a bill that would delay the bureau's new rules for two years, and give states with payday loan laws on the books already wide latitude to do their thing. The bill is backed by a generous slice of Florida's congressional delegation, some of whom were state legislators in 2001, when the Florida law setting restrictions on payday loans was passed.

"This legislation would limit the bureau's ability to protect consumers against high cost payday loans," Torres said on the call. "It would allow the industry to avoid federal regulation all together."

Executives for some of the largest payday loan providers in Florida, of course, believe the state already does a fine job of regulating their business. "They are suggesting the state law hasn't worked," Amscot's CEO Ian Mackechnie told me. "I take issue with that. In the last fifteen years, it has proven to be successful."

A spokeswoman for Congressman Ross did not respond to a phone message and a pair of email requests for comment. And Sean Bartlett, a spokesman for Congresswoman Debbie Wasserman Schultz, argued the state was successful in reigning in the payday loan industry in 2001. "The state house and senate voted unanimously at the time to make reforms that, fifteen years later, better protect consumers while still preserving access to credit for working families who need it," Bartlett said in a statement on behalf of Congresswoman Wasserman Schultz. "Her goal has been and remains balancing access to capital while protecting consumers."

Under Florida law, every lender has to input each payday loan transaction into a database maintained by the state's Office of Financial Regulation. (A spokeswoman for the financial office declined comment on the critical report.) Companies like Amscot, which operates solely in Florida, can only provide loans for up to $500 and are only allowed to tack on a finance charge. A borrower can return the money within a 24-hour period without penalty, and if a borrower can't pay the money back after 14 days, they are entitled to a 60-day grace period that includes a meeting with a financial counselor, who helps come up with a repayment plan. Further, if a person has an outstanding payday loan, the borrower cannot take out a new loan with another lender.

"The first thing we do is check to see if a person has an open transaction," Mackechnie said. "It's a mechanism that prevents people from going from one loan shop to another taking out multiple loans and getting over their heads."

The problem is that the mechanism is not working, according to Delvin Davis, a senior research analyst for the Center for Responsible Lending. His shop obtained payday loan records for the ten-year period beginning in 2005 by submitting a public records request to the Florida's Office of Financial Regulation. Now Davis said his team's analysis shows that 83 percent of the state's payday loan transactions were generated by borrowers who had taken out seven or more loans in 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 budget shortfall caused by a previous loan. "In other words, payday loans do not alleviate 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 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, the report says, and during the same time period, total annual fees collected by payday loan companies went up from $186.5 million to $311 million.

Amscot's Mackechnie conceded payday loans significantly contributed to his company's growth from 18 locations in the Tampa area in 2001 to 241 throughout Florida today. "It's a little more than half our business," he told me. "In terms of volume, small dollar lending represents about $1.5 billion of our total transactions annually."

But the report's authors determined the addresses for every single payday loan location in Jacksonville, Miami, Orlando, and Tampa, and found that a majority are concentrated in African American and Latino communities.

"Neighborhoods where over fifty percent of the population is black or Latino you have payday loan store concentrations that are twice as large than neighborhoods where less than twenty-five percent of the population is black or Latino," Davis said. "Also low income communities that are eighty percent below Florida's median income level have four times the concentration of payday loan stores than communities that are one hundred twenty percent over the median income level."

Jamie Fulmer, public affairs vice president of Advance America, one of the nation's largest payday loan providers, disputes all of 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 value the simplicity, reliability, and transparency of the loans; a recent national survey found more than nine in ten borrowers believe payday loans are a sensible option when faced with a shortfall."

Fulmer also cites recent studies finding the payday loan industry is providing a valuable service to consumers. For instance, the industry trade group Community Financial Services Association of America commissioned a nationwide survey of 1,000 payday loan borrowers, including 621 African Americans and Latinos, back in January. The results show that "nine in ten borrowers agree that payday loans can be a sensible decision when consumers are faced with unexpected expenses" and that 60 percent of borrowers "believe that payday loans are fairly priced for the value they provide."

But Floridians who've been in the thick of it think government officials need to do more to clamp down on predation by payday loan companies. Advocates say the simplest and most obvious fixes, as proposed in draft rules by the CFPB, would impose limits on the frequency of borrowing. And new loans should be tethered to a borrower's ability to pay it back—without getting stuck in a whirlwind of new loans.

"I know other people in the same boat," Gomez said. "Without regulations that truly protect people, we are not going to see progress."

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