Louisiana organizations that represent the elderly, the poor and others on fixed incomes want stiffer regulation of payday lending businesses that offer short-term loans with high interest rates.
They're asking lawmakers in the three-month legislative session that begins Monday to cap the fees that can be charged by the storefront lenders at an interest rate of no greater than 36 percent annually.
Supporters of the proposal say the loans now carry exorbitant fees that put borrowers in never-ending cycles of debt, where people continue to return to payday loan stores because they can't afford to pay both the loan fees and their regular bills.
"The goal is to get Louisianians out of a debt trap. We see payday lending as a real drain on Louisiana's economy," said Andrew Muhl, director of advocacy for AARP Louisiana, one of several organizations involved in the Louisiana Coalition for Responsible Lending.
Payday lenders say that if lawmakers approve the measures, they could put the loan stores out of business and send their customers to more expensive, unregulated borrowing options.
"It's a backdoor prohibition," said Jamie Fulmer, senior vice president of public affairs for Advance America, which has 113 locations in Louisiana. "It's industry elimination."
The tougher restrictions are proposed in bills whose lead sponsors are Rep. Ted James, D-Baton Rouge, and Sen. Ben Nevers, D-Bogalusa.
The Louisiana Coalition for Responsible Lending includes ministers, community organizers, Catholic bishops, Habitat for Humanity and the United Way of Southeast Louisiana. It says an average payday loan customer pays $270 in fees for a $100 loan, after taking out multiple short-term loans to repay the original loan and keep afloat with other bills.
Fulmer said the upfront cash is supposed to be short-term credit repaid in a matter of days or weeks, not equivalent to a home mortgage or a car loan. He said customers
weigh the fees associated with a payday loan against a bank overdraft fee, a utility reconnection fee or a cellphone late fee to determine which is more costly.
But supporters of an interest rate cap on payday loans say better options exist, like consumer credit counseling, payment plans, or assistance from relatives, churches or social service organizations.
Jewel Constance, who works for AARP Louisiana as a volunteer recruiter and organizer, said she paid about $400 in fees to pay off six payday loans averaging more than $300 each that she took out over three months in 2006 and 2007 when she was a college student.
Constance, 29, said she took out the first loan to pay her rent, then realized she couldn't repay the loan and its fee in two weeks, so she took out another loan and then another to pay off the prior loans.
"At the time it may have seemed small in amount, but I didn't realize how much it impacted my paycheck," she said. "It put me in a worse position than I started in. It cascaded."
Louisiana caps payday loans at $350 at a time and allows up to $55 charged for each transaction. Borrowers need to have a checking account and to prove they have a job.
Advance America charges $20 for every $100 borrowed, up to the state limits. The interest rate cap proposed in Louisiana would mean borrowers instead pay less than $1.38 for every $100 borrowed, Fulmer said.
"That's less than 10 cents a day. We can't pay our employees their salaries. We can't cover our basic overhead costs for less than 10 cents a day," he said.
A handful of states have similar caps on annual percentage rates charged on payday loans, and several others are considering them, according to the National Conference of State Legislatures.
Category: Payday loans