Accelerating his latest push for the White House, Bernie Sanders is targeting high interest rates on credit cards and payday loans.
Senator from Vermont introduced a law in May 2019 – with US Representative Alexandria Ocasio-Cortez – that would cap both rates at 15%.
Payday loans are small dollar advances designed to provide emergency funds. They are usually due in full on the borrower’s next payday. Critics say these traders unfairly take advantage of those in financial difficulty with sky-high interest rates.
Sanders, who is running for the 2020 Democratic presidential nomination, focused on those rates in Wisconsin – and several other states – in a May 10, 2019 Tweeter. Here is what he said:
“Average annual interest rates on payday loans:
It’s time to end the predatory lending that keeps Americans in debt. We will cap interest rates on consumer loans and credit cards at 15%.
This implies that Wisconsin’s rates are among the worst in the country for payday loans.
Let’s see where we are and if the 574% interest is correct.
Wisconsin Among Worst States For Payday Loan Rates
Payday loan operators tend to thrive in poor and minority communities, where borrowers struggle to obtain traditional credit.
The loans are ostensibly designed to close the gap until the next payday, but astronomical interest rates – averaging over 300% nationwide – mean most consumers can’t afford to pay it back fully, according to the Federal Bureau of Financial Consumer Protection.
In one month, 70% of payday borrowers take out a second personal loan. And about 20% of borrowers fall into a debt trap that includes 10 or more loans, the office said.
This matches Sanders’ claim that these loans keep consumers “in debt”.
The states of the Sanders lists are those with the six higher annual rates on payday loans according to the Center for Responsible Lending, a non-partisan organization that calls for more guarantees for consumers.
The group calculated the rate for each state referenced by Sanders based on the rate most commonly advertised for a $ 300 loan by each state’s largest payday chains, spokesman Matt Kravitz said. Thus, a state where the four largest lenders have rates of 300%, 400%, 500% and 500% would be listed at 500% since this appears most often.
In other words, it’s not an “average” as Sanders’ tweet claims.
Sanders spokesman Bill Neidhardt confirmed the tweet was based on figures from the responsible loan group.
Wisconsin is one of three states – along with Delaware and Texas – that have no rate limit on short-term payday loans, Kravitz said. Many states cap those rates at around 15%, and the responsible lending group says caps of 36% or less can stop the “payday loan debt trap” cycle.
Other states have recently taken steps to address this issue. PolitiFact Ohio has rated a claim that their state’s payroll laws were the “worst in the country” as True in June 2018. But a law that went into effect in April 2019 rates capped at 28% and limited the frequency and amount of these loans.
Wisconsin figures show lower annual rate
The Wisconsin wage rate cited by Sanders and the Center for Responsible Lending is based on the advertised rates. The actual rates reported to the government are slightly lower.
State Department of Financial Institutions, which regulates the payday loan industry here, said the average rate for 2018 was 486% based on data reported by the lenders themselves. That would mean $ 65.18 in interest charges on a $ 350 14-day loan.
The government limits the interest rate charged after the loan maturity date, capping it at 2.75% per month. Other limits on payday loans in Wisconsin include restricting consumers to loans of $ 1,500 or 35% of their gross monthly income, whichever is less.
Sanders included Wisconsin on a list of the nation’s highest payday loan rates. He said Wisconsin had an “average annual interest rate” of 574%.
This matches the numbers reported by a national group that tracks those numbers. But Sanders called this the average rate, when in fact it is the most common “fad” or rate among the largest lenders.
State figures that calculate a real average show a rate of 486% – slightly lower, but still astronomical and still among the highest rates in the country.
These rates can, as Sanders put it, create a cycle that leaves consumers “in debt”.
We rate Sanders’ claim to be fairly true.