Nebraska's rate-cap Measure 428 proposed changing the state's laws to prohibit licensed "delayed deposit services" providers from charging borrowers annual percentage rates of more than 36%. The initiative, which had backing from community groups and other advocates, passed with nearly 83% of voters in favor, according to an unofficial tally from the Nebraska secretary of state.
The result brings Nebraska in line with neighboring Colorado and South Dakota, where voters approved similar 36% rate cap ballot proposals by strong margins in 2018 and 2016, respectively. Fourteen other states and the District of Columbia also have caps to curb payday lenders' rates, according to Nebraskans for Responsible Lending, the advocacy coalition that led the "Vote for 428" campaign.
That coalition included the American Civil Liberties Union, whose national political director, Ronald Newman, said Wednesday that the measure's passage marked a "huge victory for Nebraska consumers and the fight for achieving economic and racial justice."
"Voters and lawmakers across the country should take note," Newman said in a statement. "We need to protect all consumers from these predatory loans to help close the wealth gap that exists in this country."
Passage of the rate-cap measure came despite arguments from industry and elsewhere that the additional restrictions would crush Nebraska's already-regulated providers of small-dollar credit and drive cash-strapped Nebraskans into the arms of online lenders subject to less regulation.
The measure also passed even as a majority of Nebraskan voters cast ballots to reelect Republican President Donald Trump, whose appointees at the Consumer Financial Protection Bureau moved to roll back a federal rule that would have introduced restrictions on payday lender underwriting practices.
Those underwriting standards, which were formally repealed in July over what the agency said were their "insufficient" factual and legal underpinnings, sought to help consumers avoid so-called debt traps of borrowing and reborrowing by requiring lenders to make ability-to-repay determinations.
Supporters of Nebraska's Measure 428 said their proposed cap would similarly help stave off debt traps by limiting permissible finance charges such that payday lenders in Nebraska could no longer saddle borrowers with unaffordable APRs that, according to the ACLU, have averaged in excess of 400%.
The 36% cap in the measure is consistent with the 36% limit that the federal Military Lending Act set for consumer loans to service members and their families, and consumer advocates have considered this rate to demarcate an acceptable threshold for loan affordability.
Last year, the Center for Responsible Lending and other consumer groups endorsed a plan from U.S. Senate and House Democrats to enact a national 36% APR cap on small-dollar loans, but their proposed legislation, dubbed the Veterans and Consumers Fair Credit Act, has failed to gain traction.
Still, Kiran Sidhu, policy counsel for CRL, pointed Wednesday to the success of Nebraska's measure as a model to build on, calling the 36% cap "the most efficient and effective reform available" for addressing repeated cycles of payday loan borrowing.
"We must come together now to protect these reforms for Nebraska and the other states that effectively enforce against debt trap lending," Sidhu said in a statement. "And we must pass federal reforms that will end this exploitation across the country and open up the market for healthy and responsible credit and resources that provide real benefits."
"This is especially important for communities of color, which are targeted by predatory lenders and are hardest hit by the pandemic and its economic fallout," Sidhu added.
--Editing by Jack Karp.
For a reprint of this article, please contact reprints@law360.com.
