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**CONSUMER ALERT** CFO Patronis: Beware of Unregulated Lending Products and Excessive Household Debt

8/9/2024

 

For Immediate Release: Friday, August 9, 2024
Contact: Office of Communications, Communications@MyFloridaCFO.com, 850.413.2842

**CONSUMER ALERT**
CFO Patronis: Beware of Unregulated Lending Products and Excessive Household Debt

TALLAHASSEE, Fla. – Today, Chief Financial Officer (CFO) Jimmy Patronis issued a consumer alert warning Floridians about unregulated consumer loan products and the impacts of excessive household debt affecting families across the country.

While Florida's robust consumer protection laws and regulations are the national model for short-term, small-dollar loans, recent reports reflect that American borrowers struggling with higher inflation and interest rates are now mired in debt. At the same time, unregulated financial products, not subject to Florida regulation that offer quick loans are being marketed to consumers in need of fast cash. CFO Patronis cautioned that it's critical for consumers to understand the risks of these unregulated financial products, which often charge excessively high interest rates and fees that can aggravate an already dire financial situation and create financial dependency.

CFO Jimmy Patronis said, "As Washington struggles to get a grip on soaring inflation and rising interest rates, Americans are facing unprecedented financial pressures. With savings depleted, many are turning to credit cards and loans to make ends meet. Now more than ever, Floridians must prioritize their financial health by carefully budgeting, spending wisely, and guarding against predatory lending practices. While Florida's well-thought-out regulations prevent predatory lending practices and excessive interest rates, some out-of-state internet­ based lenders seek to circumvent these guardrails. Unregulated loan products not subject to Florida's stringent consumer protection statutes - such as "Earned Wage Access" and "Buy Now Pay Later'' apps - have gained popularity as quick financial fixes, but these options can often contribute to a dangerous cycle of debt. Until these products are required to adhere to the same statutory consumer protections that govern regulated loan products, families should approach these services with extreme caution. Always remember: If an offer seems too good to be true, it probably is."

Five Household Debt and Borrowing Tips:

 

  1. Understand Personal Finance & Budgeting: Take the time to learn about personal finance. Understanding interest rates, loans, and financial products can empower you to make informed decisions and avoid costly mistakes. Track your income and expenses to understand where your money goes each month. A detailed budget can help you prioritize your spending and ensure that you live within your means. Florida's longstanding consumer protection laws ensure loan transparency and cap loan amounts and interest rates to support access to safe, responsible financial products.
  2. Beware of the Risks of Earned Wage Access Services: Earned Wage Access (EWA) apps allow employees to access a portion of their earned wages before their official payday. Since these unregulated internet-based products are not subject to the same laws that fortify consumer protections for consumer loans, EWA products do not have to carry limits on loan amounts, interest rates, or the number of outstanding loans per consumer, and they are not subject to the Truth in Lending Act. Promoted as providing financial flexibility, they also come with potential pitfalls including exorbitant fees and costs that could lead to a reliance on early wage access, making it harder for individuals to budget and plan their finances effectively. Florida families should use caution when considering financial products that are not required to adhere to Florida's transparency measures, or to caps on loan amounts and interest rates.
  3. Have an Emergency Fund & Plan for Big Purchases: Before making any significant purchases, plan and save for them instead of financing with debt. This allows you to avoid impulse buying and gives you the opportunity to shop around for the best deals. Aim to set aside three to six months' worth of living expenses in a separate savings account. This fund can help you cover unexpected expenses without relying on credit.
  4. Be Wary of Unregulated Payday Loans: Short-term, small-dollar loans (or "payday loans") allow families who experience a financial emergency, such as car or appliance repairs, to access needed funds before their next paycheck. Florida laws support financial self-sufficiency and responsible access to short-term, small-dollar loans (or "payday loans") through strict regulations, requiring payday lenders to cap loans at $1,000 and interest rates to no more than 10% of the loan; comply with the Truth in Lending Act; participate in a statewide database to ensure that consumers have no more than one outstanding loan; and provide grace periods and credit counseling to consumers. Unregulated payday loans often come with extremely high interest rates and hidden fees, which can lead to borrowers repaying far more than they initially borrowed, pushing them into a cycle of debt in which they take out new loans to pay off existing ones. The Florida Office of Financial Regulation's Division of Consumer Finance regulates payday lenders and safeguards Florida families from bad actors. You can verify a license or file a complaint on the OFR website.
  5. Understand "Buy Now Pay Later" loans: Buy Now Pay Later (BNPL) apps have gained popularity for allowing consumers to make purchases without immediate payment. However, there are several pitfalls associated with their use. Users end up accumulating more debt than they can manage, as the ease of splitting payments can lead to overspending. While many BNPL services advertise no interest for a certain period, falling to pay on time can lead to high-interest charges and late fees, which can make purchases significantly more expensive. The convenience of BNPL can encourage impulse purchases, leading consumers to buy items they may not need or cannot afford. Unlike credit cards, BNPL transactions may not offer the same level of consumer protection, making it difficult to dispute charges or seek returns.

     

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    About CFO Jimmy Patronis  
    Chief Financial Officer and State Fire Marshal Jimmy Patronis is a statewide elected official and a member of Florida’s Cabinet who oversees the Department of Financial Services. CFO Patronis works each day to fight insurance fraud, support Florida’s firefighters, and ensure the state’s finances are stable to support economic growth in the state. Follow the activities of the Department on Facebook (FLDFS) and X (@FLDFS).

 

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