If you're one of the many Louisianans living paycheck to paycheck, this is how it goes: The rent is past due, or you're so far behind on your utility bill the power is about to be cut off. Or the car needs an emergency repair — and without it you can't get to work. You need immediate cash, so you turn to a payday lender.
A recent study by the Pew Charitable Trusts found that 12 million Americans a year use payday loans — and the percentage of payday borrowers is disproportionately higher among several groups. They include people who make less than $40,000 a year, renters, African Americans and the non-college educated. Pew also found that borrowers typically take out an average loan of $375 — and pay back $520 in interest.
Last week, Louisiana lawmakers killed two bills that would have put some small regulations on payday lenders. Rep. Ted James, D-Baton Rouge, saw his House Bill 239 (which would have established a maximum 36 percent interest rate on payday loans) rejected in the House Commerce Committee. The vote went down along party lines — all who voted for it were Democrats, while Republicans all voted against it.
State Sen. Ben Nevers, D-Bogalusa, saw his Senate Bill 84, which would have established a similar interest-rate cap, amended in committee to do away with the cap before the bill was sent to the full floor. The amended version would instead have limited the number of payday loans Louisianans could take out to 10 per year. Payday lenders — a powerful lobby in Baton Rouge — didn't like that. The bill was sent back to committee.
Attempts to rein in payday loans are backed by a group called Together Louisiana, which drew support from several other organizations, including AARP, the Louisiana Budget Project and the Southern Baptist Convention. The groups pointed to a new study by the Louisiana Office of Financial Institutions, which reports that Louisianans paid $146 million in interest and fees last year to payday lending institutions.
Troy McCullen, president of the Baton Rouge-based Louisiana Cash Advance Association, says that proves his industry is needed here. In a letter to the Tri-Parish Times, McCullen wrote that "a payday loan is the most affordable and reliable option" for Louisiana families who are caught short when a bill is due. McCullen also said that the average fee on a $100 short-term loan was only $20 — less than the charge for a bounced check or a utility reconnection fee.
All of that is true. But McCullen's letter obfuscates a larger point. Unlike conventional or bank loans, which charge interest but allow borrowers to pay in installments, Louisiana payday loans are an all-or-nothing proposition. If a borrower doesn't have the full payment when the loan comes due, penalties kick in — and they can be harsh. Moreover, a payday lender often accepts a postdated check or authorization to debit the borrower's bank account for the amount that's due. When the lender cashes the check on the loan's due date, it triggers more fees from the bank or credit union if the check bounces. A chain reaction thus can occur where the borrower has no choice but to continue the payday loan, paying a renewal fee each time it comes due and driving up the total cost of the loan.
Other states have banned or regulated payday lending. Georgia and North Carolina have imposed interest caps. Colorado allows repayment over time. Louisiana needs to rein in payday lenders in a similar fashion.
Our state currently provides only minor safeguards for payday borrowers. The maximum loan is $350 per loan (lenders cannot charge additional fees for loans higher than that), though nothing prevents borrowers from taking out multiple payday loans — something Nevers' bill tried to fix. (Fourteen states regulate the number of payday loans that residents can take out, according to Pew.)
In Colorado, the Pew study found, the number of payday loan outlets shrank by 53 percent between after regulations were enacted. Lenders that remained open did better business. What happened to the others? The study said, "Lenders still operating in the state say one reason some colleagues have left Colorado is that they can charge more in other states or online."
Maybe some of them came to Louisiana. We hope state lawmakers will take another look at payday loan regulations — and adopt measures to protect Louisiana's poorest borrowers.