Louisiana Senate moves to loosen payday lending regulations
Inside Subprime: May 7, 2018
By Kerry Reid
As state legislatures across the country debate whether or not to enact more regulations on payday lending practices, the Louisiana Senate just passed a bill on May 1 to expand the industry.
Senate Bill 365 – known as the Louisiana Credit Access Loan Act – raises the cap on payday loans in the Pelican State. Currently, Louisiana caps these loans at $350 for no more than 60 days. But SB365, written by Sen. Rick Ward III (R-Port Allen), requires that the loans be in the range of $500-$875 for terms of three to 12 months. The bill passed the Senate in a 20-17 vote.
The House version of this bill – HB501, or the Louisiana Installment Loan Act – was introduced by Rep. Chad Brown (D-Plaquemine) in March and is currently in the House Committee on Commerce. The proposed House legislation establishes a range of $500-$1,500 for installment loans and a term of six to 12 months.
In a May 4 article for the Greater Baton Rouge Business Report, Caitie Burkes notes that Ward’s bill also raises the annual percentage rate (APR) on these loans. Under the current Louisiana Consumer Credit Law, the APR is capped at 85 percent. SB365 raises that to 167 percent.
Jan Moller, director of the Louisiana Budget Project, said in a May 2 report for KATC: “What this bill really does is expands an industry that really should be contracted.” The Louisiana Budget Project advocates for low- and moderate-income households. They joined several other nonprofit advocacy groups, including the state branch of the NAACP and the Southern Poverty Law Center, in signing an open letter protesting the Senate bill.
Moller’s concerns about the effects of payday lending on the state economy are echoed in a May 3 guest editorial by Chris Odinet and Davida Finger for the Advocate, the largest daily paper in the state. The authors are law professors at the Southern University Law Center and the Loyola University College of law, respectively.
Odinet and Finger take aim at attempts in Congress to roll back some of the restrictions on payday lending enacted through the federal Consumer Financial Protection Bureau. The “payday loan rule” of the CFPB, as the authors explain it, “simply limits the frequency of back-to-back loans and requires lenders who want to make more than six loans or 90 days’ worth of loans to a person to assess their borrower’s ability to repay their loan, as most credit card companies must do.”
Though the authors note that none of the current Louisiana Congressional delegation has signed on as co-sponsors of resolutions in the U.S. House and Senate to repeal the payday loan rule, they also point out that Louisianans are vulnerable to predatory practices when they seek short-term, high-interest loans when facing a budget emergency.
Interest rates in the state are “as high as 391 percent,” according to their editorial. They also point out that real problems occur when borrowers can’t repay the original loan and borrow repeatedly. According to Odinet and Finger, payday and car-title loan lenders (the latter require that borrowers put up the title to their automobiles as collateral) take $241 million a year out of the state economy.
Odinet and Finger also cite a study by the CFPB showing that 80 percent of payday loan borrowers in the United States “either roll their loan over, for a sizeable fee, or re-borrow within 14 days. As many as 15 percent of people fall into a deep debt trap, re-borrowing 10 or more times in a row and entering a cycle of debt and repayment lasting months or even years longer than the original terms of the loan.”
Interestingly, though the Senate bill passed with bipartisan support, it didn’t receive support from payday loan operations based in Louisiana. As reported by Burkes, Troy McCullen, president of the Louisiana Cash Advance Association, said that all local payday loan operations opposed the bill, and called it “a ploy by national companies to enrich themselves.” He also claims that 15 lobbyists from the national industry are working on the bill and called it “greed and arrogance at the highest level.” Burkes describes the bill as a “safeguard” pushed by the national industry in case the CFPB pushes new regulations in 2019. (Ward couldn’t be reached for comment by Burkes.)
Even without Ward’s bill, the payday loan industry in Louisiana is thriving, according to a report for the Louisiana Budget Project by Carmen Green. Green notes that there are “four times as many payday lending storefronts than McDonald’s in the state” – or one lender for every 4,800 residents. Many of these are concentrated in lower-income and minority neighborhoods, where access to traditional loans through banks and credit unions is limited.
It now remains to be seen if Ward’s bill can advance through the Louisiana House and gain the signature of Democratic governor John Bel Edwards.
To learn more about payday lending in the Southern U.S., check out these related pages and articles from OppLoans: