I recently wrote a post about short term loans, exploring whether or not they were really that bad. It led to a heated debate on the Facebook share which got me thinking, how can we protect and advocate for ourselves around controversial and sticky legislation?
Some back story from the Facebook share: There seemed to be two camps of people: those who were more financially comfortable, and those who weren't. Those who were more financially comfortable didn't seem to have a direct experience with short term loans and tried to say the loans are bad and people shouldn't have access to them. Whereas those who had experienced financial hardships at times, shared personal experiences about how a short term loan helped them out of a bind. Which honestly didn't surprise me. There's this thing that happens in our country: people without direct experience on an issue (and oftentimes, people of privilege) believe they know what's best for others. Shortly after reading through the comments, I came across this article by The Sacramento Bee. There are lawmakers who want to end the practice of selling midsize loans that carry large interest rates to people in difficult finance circumstances. Sounds great, right? Think again.
At a glance it makes sense for a bill like this to pass. After all, the interest rates on short term loans can exceed 100% of the loan itself. So why wouldn't we all be in favor of a 36% cap to protect the everyday consumer? Well, because it's not that simple. According to The Sacramento Bee article, Assemblywoman Monique Limón, D-Goleta, and consumer advocates seem to have made a deal on the legislation with low interest, low ethic loan companies and decided the bill would apply only to interest on the loan itself. Meaning, bad actor loan companies can continue their predatory practices by of tacking on credit insurance and additional fees; which according to the Pew Charitable Trust, can increase borrowing by more than a third. Meanwhile, transparent and honest loan companies are pushed out of the market, unable to lend to riskier borrowers at an arbitrarily low interest rate.
While the example I'm using is a California piece of legislation, the issue is American. We all are continuously putting our fate into representatives and lawmakers hands, who don't always paint a transparent or accurate picture of what we are getting into. So how can we as Americans protect ourselves when bills like this come up? How can we ensure that our rights and needs are being advocated for? Educating ourselves is obviously the most important first step, but there are other things you can practice too.
How To Protect & Advocate For Yourself With Sticky Legislation
Understand the bills that affect you
Part of educating yourself will mean developing an understanding for the bills that impact you. When I say understand, I mean both at a glance, but also at the loophole level. Like this example in California, at a glance, it sounds like an excellent bill that would cap the interest rates on short term loans. However when you dig deeper and consider the loop holes, low interest, low ethic lenders can still engage in practices like tacking on insurances and fees that are still unregulated and often hidden in contracts. It's important that once you recognize these flaws in a piece of legislation, that you talk with your representatives. Let them know this is something you care about. Your voice matters in situations like this. If you stay silent, your representative will think you don't have an opinion.
Research open ended issues
Ambiguous language in contracts and legislation happens all the time. While you may not be a lawyer, it's important to get in the habit of thinking like one… and before I scare you off with that sentence, here's what I mean: ask questions and poke holes in things. “What if” may be an annoying question to ask yourself on the daily, but it's an essential question to ask yourself in situations like this.
For instance, what if this passes, how can low interest, low ethic lenders keep lining their pockets? “What if” allows you to look at what potential problems that can arise if a bill passes and plan your next action steps accordingly. Going back to California, the bill doesn't regulate contract transparency issues like credit insurance and additional fees. When doing some research, I found that 9 out of 10 times, credit insurance is automatically in the contract that borrowers are signing. Director of consumer finance with Pew, Nick Bourke, said, ““We have found in our research that credit insurance often carries little to no value for consumers except maybe for quite large loans.” So by asking “what if” in this scenario, we see that we are still leaving an already vulnerable population vulnerable.
What the bill does do is push transparent loan companies out of the market – those that can’t afford to offer loans at arbitrarily low interest rates.
If it sounds too good to be true, dig deeper
The reason laws have such a hard time getting passed, is often because there are many opposing points of view. If a bill comes along and sounds too good to be true, the likelihood is there are a lot of “what ifs” to dig into. This is when you need to go back to doing your own research, talking with policy makers and the people the policy will directly impact, to discover where vulnerabilities lie.
Like I mentioned, the California bill was created with low interest, low ethics loan companies. Two of whom, sell credit insurance. Two major companies backing the proposal, Lendmark and OneMain, sell credit insurance (an ancillary product). The bill made sound too good to be true in a headline, but when you dig deeper, you realize it's not.
Understand the terms you're agreeing to
One of the biggest issues that still stands, is that often times people don't read or understand the agreements they are getting into. Understanding bills, terms of service/use, and the like can feel overwhelming to the everyday person. Especially today when it honestly feels like you need a law degree to properly arm yourself from all the ways people and companies are trying to take advantage of others. Short term loans with very low interest rates – too low and too good to be true – often include hidden fees and terms buried in legalese. But don't let the legalese scare you off. Remember, you have rights and a voice – so use it to ask questions and advocate for yourself.
Going back to the legislation example, I get how being in a financial pinch with less than stellar credit, and a limited proficiency in English, it can be easy to sign an agreement that will get you out of today's problem. By default, a lot of these contracts are not transparent about fees like credit insurance – few people actually speak up and ask to opt out. I know how often I've been handed a contract and forgotten that I have a say in it too. I can ask questions, and refute things that don't align with what I want. It's important to remember we all have rights and a voice, even if we feel like the underdog that has to go with the terms set forth. Trust me, quickly trying to solve today's problem, will only result in tomorrow's headache. So spend the extra time asking for things to be explained to you so you can save yourself the time (and money) down the road.