Payday lenders want to offer larger loans. Critics say it is “designed to trap” low-income families. | Legislature

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Is a $1,500 loan worth it if it costs you another $1,500 in interest and fees?

That’s what payday lenders would be allowed to charge cash-strapped consumers in Louisiana if Gov. John Bel Edwards allows. Senate Bill 381 to become law.

The legislation would allow lenders to offer installment loans worth up to $1,500 over three to 12 months, with an annual interest rate of up to 36% and a monthly “maintenance fee” worth up to $1,500. 13% of the original loan amount. Loans over $400 may also incur a $50 subscription fee.

The proposal, which passed through the Legislature and is now on Edwards’ desk, would cap finance charges at 100% of the original loan amount, meaning lenders could charge up to $1,500 in fees on a $1,500 loan, for a total payment of $3,000.

SB381’s sponsor, state Sen. Rick Ward, a Republican from Port Allen, called the measure the “Louisiana Credit Access Loan Act” and says the new loan product will help Louisianans living paycheck to paycheck. paycheck to make ends meet when faced with unexpectedly large expenses.

But critics say it is a predatory product and that allowing payday lenders to make larger, longer-term loans at sky-high rates will trap low-income Louisianans in cycles of debt.

“This harmful bill targets working Louisiana families who don’t deserve to have their meager wealth taken away by a machine designed to trap them,” said Davante Lewis of the Louisiana Budget Project, which advocates for low- to moderate-income residents. . “The governor should immediately veto this bill.”

The state’s current payday loan system allows lenders to offer a loan of up to $350, due on the borrower’s next payday. The most a payday lender can do per loan is $55. Ward’s proposal does not replace or reform that system. Instead, create a new product.

Lenders offering the new product outlined in SB381 would get most of their money with a monthly “maintenance fee” worth up to 13% of the original loan amount.

For a $1,500 loan, that fee would be $195 per month.

Alex Horowitz, a consumer finance researcher at The Pew Charitable Trusts, said he had never seen such a high fee.

“We found that the bill would expose Louisiana consumers to financial harm, instead of creating an affordable lending market like those seen in states that have successfully reformed their payday loan laws,” Horowitz wrote in a letter for both Ward and Edwards.

Kenneth Pickering, who twice served as Louisiana’s top banking regulator, said he has no idea what the monthly maintenance fee covers.

“Once a loan is registered, there is nothing to maintain,” he said, adding that the fee is “nothing but more interest.”

Pickering, who represents the Louisiana Financial Association, an organization of more than 600 state lenders, told lawmakers: “This fee makes this bill, in my opinion, a violation of our usury laws in Louisiana.” .

‘The good alternative’

Ward argues that the new loan product is necessary for Louisiana residents who can’t get a similar-sized loan elsewhere.

“As soon as someone provides an alternative, and I don’t mean an alternative that’s just pie in the sky, but a viable alternative, I’ll be there to support it, but I haven’t seen it yet,” Ward. he told his colleagues. “Until then, I think this is the best we have to offer.”

But Stanley Dameron, whom Edwards appointed as commissioner of the Office of Financial Institutions, told lawmakers there are plenty of alternatives.

“Some of the people who would apply for these loans might not qualify at their bank, but they certainly would at a credit union or finance company,” Dameron said.

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Jessica Sharon of Pelican State Credit Union told lawmakers it’s a “myth” that similar loan options aren’t available for people with financial problems. She pointed out that credit unions were created explicitly to help poor people.

“Our goal is to help people who are struggling with their finances, who have low incomes, low credit scores,” Sharon told lawmakers. “Not only do we oppose (SB381), but we know we are the good alternative.”

There are 165 credit unions in Louisiana, and 133 cater specifically to low-income populations, Sharon said, adding that many already offer installment loans, without the need to charge a 13% monthly maintenance fee.

Ward argues that the legislation would help those whose financial history has prevented them from opening a bank account. But Pew’s Horowitz said payday loan borrowers must have a checking account somewhere.

“These are not the unbanked,” Horowitz said. “They have to have a checking account to get a payday loan.”

Horowitz noted that seven of the nation’s 12 largest banks have launched, or recently announced, programs to make small-dollar loans to customers.

local vs national

Backing Ward’s proposal are a couple of out-of-state corporations that together own dozens of Check Into Cash and ACE Cash Express locations across the state.

But not all payday lenders agree with the bill.

Troy McCullen of the Louisiana Cash Advance Association, which represents payday lenders based in Louisiana, said there is no need for the new product.

“These loans are now available in Louisiana at a fraction of the cost,” McCullen said. “This is greed and arrogance at the highest level.”

McCullen made similar comments four years ago, when Ward sponsored a different measure to allow payday lenders to offer longer-term loans. That measure failed to pass a House committee.

Pickering of the Louisiana Finance Association said another problem with SB381 is that it gives borrowers only one day to rescind the loan. He said it’s a “very short time frame for anyone to reconsider.”

It also noted that the 100% cap on fees and interest does not include late fees or non-sufficient funds fees.

Supporters of SB381 include Community Choice Financial, an Ohio-based corporation that owns Check Into Cash, and Populus Financial Group, a Texas-based corporation that owns ACE Cash Express.

Finance America Business Group, a Louisiana-based company that owns Cash 2 U stores, also supports the move, as does the Louisiana Payday Loan Association, which represents local lenders.

The bill left the Senate in April with a vote of 20 to 14, enough to pass. State Sen. Gary Smith, whose wife, Katherine Smith, is a registered lobbyist for Community Choice Financial, was the only Democrat on that initial vote to support the measure.

“She never talked to me about it,” Senator Smith said in an interview, adding that payday lenders are the “only place some people have to go to get a loan. They can’t go to a bank. They can’t go to a credit union.”

The measure passed the House in a 54-35 vote in May.

The Legislature sent the bill to Edwards’ desk on May 19. Under the Louisiana constitution, the governor has 10 days after receiving a bill to sign it, veto it, or let it become law without his or her signature.

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