As predatory lenders continue to take advantage of consumers, states across the country are putting legislation in place to protect borrowers and minimize the damage they can sustain from predatory lending. Laws can prohibit certain types of lending or minimize interest rates, fees, and collection harassment.
Because Addition Financial is a Florida-based credit union, we’ve made it a point to familiarize ourselves with Florida usury laws and statutes. The good news is that Florida legislators have enacted some legislation that can protect consumers. Is it enough? Keep reading to learn about the laws that exist to protect Florida residents from predatory lending.
#1: Payday Loan Limitations and Restrictions
Payday loans are one of the most common forms of predatory lending. They provide short-term loans at an exorbitant interest rate that goes into the triple digits when annualized. Florida has a law in place (Fla. Stat. Ann. § 560.402 and following) to limit what payday lenders can charge and protect consumers from their predatory lending practices. There are several key provisions of the law that you should know about:
- Limit on loan amounts. By law, the maximum amount for any payday loan is restricted to $500.
- Limit on payday borrowing. Borrowers may take out only one payday loan at a time. Florida tracks payday loans through a central database to ensure that borrowers and lenders adhere to the limit.
- Limit on loan term. The rule in Florida is that no payday lender may offer a loan with a term less than seven days or more than 31 days.
- Limit on interest rates and fees. Payday lenders may not charge more than 10% interest plus a $5 verification fee.
- Rollovers are prohibited. If you take out a loan for 14 days, the lender cannot roll the loan over into a new 14-day term even though the total would be less than 31 days.
- Grace period. If you can’t repay your loan at the end of the term, you’ll receive an automatic 60-day grace period and the lender may not charge you additional interest or late fees.
- Collection limits. Payday lenders may not pursue criminal action if you have a returned check. They can file a lawsuit to recoup interest but awards are limited to the state judgment rate and not the payday loan interest rate.
We should note here that while these protections look impressive, payday loans that operate within them are still predatory and it’s best to avoid them. If you calculate the 10% interest on a 14-day loan out to a full year, the rate would be 240%. There are multiple ways to get money without falling prey to an usurious interest rate.
#2: Disclosures for High Cost Home Loans
Predatory lending isn’t limited to payday loans. Real estate is another opportunity for usury. Unscrupulous mortgage lenders can sometimes hide fees and other loan terms. David Reischer is a Consumer Attorney and the CEO of LegalAdvice.com. He told us:
“Chapter 494 Section 00792 - 2011 Florida Statutes mandates that a lender shall not make a high-cost home loan that is usurious and also not engage in any pattern or practice of extending high-cost home loans to borrowers.”
Some of the specific provisions of this law include the following:
- Lenders must disclose, in writing, that the borrower is legally bound to the loan terms and may lose their home if they fail to meet their obligations.
- They must also disclose the annual percentage rate (APR) and total monthly payment.
- They must disclose the amount of any interest rate increases for an adjustable rate mortgage loan, including the maximum interest rate allowable by law.
- They must disclose the amount of any balloon payment.
- Loan documents must include the right of the borrower to rescind the loan (right of rescission) under federal law within three business days prior to the consummation of the high-cost loan.
Some of these protections, such as the right of rescission, fall under federal law and are restated for the purposes of clarifying Florida’s law. As a reminder, you should always read the disclosures on a written contract before signing a loan document.
#3: Limit on Interest Rates (Anti-Usury Statutes)
Usury is defined as the practice of lending money at unreasonably high interest rates. Florida has an entire chapter of law that prevents usury and punishes lenders that charge exorbitant interest rates. Jake Hill, the CEO of DebtHammer, told us this:
“Florida actually has a fair number of laws in place to protect borrowers from predatory lending. Chief among these is a usury law that prevents lenders from charging more than 18% on loans less than $500k.”
Here are the key anti-usury provisions in Florida that you should know about:
- No lender may charge more than 18% interest for loans less than $500,000.
- No lender may charge more than 25% interest for loans more than $500,000.
- Any lender charging more than 25% but less than 45% shall have committed a second-degree misdemeanor.
- Any lender charging more than 45% shall have committed a third-degree felony.
- Any lender who makes an extortionate extension of credit, threatening violence or other criminal means of harm, shall have committed a second-degree felony.
The most important thing you should know about the anti-usury chapter is that any usurious loan found to have been issued in violation of the law’s provisions is deemed to be an invalid debt and is therefore not collectable under the law.
#4: Title Loan Limitation
Title loans are a form of predatory lending that offer quick cash loans secured by the title to your car and sometimes, the title to a house. The risk is clear – if you fail to repay the loan, the lender has the right to seize your property to recoup their money.
Florida Chapter 537 sets out an usury limit on payday lending and offers some protection to consumers. Here are some of the key provisions:
- Any Florida lender issuing title loans must have a current license and have paid all associated fees under Florida Law.
- Interest rates are limited as follows:
- 30% per year on the first $2,000 of the principal amount
- 24% per year on the principal amount exceeding $2,000
- 18% per annum on the principal amount exceeding $3,000
- Interest rates must also adhere to the limits set out in the Truth in Lending act.
- Title loans may be rolled over into a new, 30-day loan if both the borrower and the lender agree. The lender may not charge a higher interest rate than they did for the initial loan.
- Any loan issued in violation of these rules is deemed to be void and may not be collected by the lender.
- If the borrower fails to repay the loan after a 30-day grace period, the lender may seize the collateral property as repayment.
We offer the same words of caution here that we did for payday loans. These provisions offer only limited protections to Florida consumers. Title loans are still predatory and risky. If you get one and do not have the means to repay it, you could end up losing your car.
#5: Prohibition of Discriminatory Lending Practices
You may already know that the Fair Housing Act prohibits discrimination in lending on the federal level. Florida also has laws that prohibit lenders from using discriminatory lending practices. In part, the law says that lenders may not discriminate based on the:
“...race, color, national origin, sex, disability, familial status, or religion of such person or of any person associated with him or her in connection with such loan or other financial assistance or the purposes of such loan or other financial assistance, or because of the race, color, national origin, sex, disability, familial status, or religion of the present or prospective owners, lessees, tenants, or occupants of the dwelling or dwellings in relation to which such loan or other financial assistance is to be made or given.”
The law specifically prohibits lenders from refusing to issue a loan on the basis of any of the identified characteristics listed above, making it illegal to “discriminate against him or her in the fixing of the amount, interest rate, duration, or other term or condition of such loan or other financial assistance.”
The takeaway here is that a lender may not refuse you a loan or charge you a higher rate than it would charge someone else because of your race, nationality, gender, disability, family status, or religion.
What to Do if a Lender Breaks Florida Law
If you are shopping for a loan and suspect that a lender has broken one of these laws or if you have an existing loan that’s in violation of state usury law, your best bet is to report it immediately. You can do so on the Office of Financial Regulation website. You should check to see if the violation also breaks a federal law and if it does, report it to the Federal Trade Commission on their website, here.
Florida has laws in place that offer consumers some protection against usury and other predatory lending practices. The five laws we’ve listed here cover most of the protections. It’s important to report any violations, so that you can extract yourself from the loan agreement and protect your assets.
The best way to avoid predatory lending is to work with a reputable lender. Addition Financial offers members competitive interest rates. Click here to learn about the benefits of membership!
