payday loans
Payday lenders have successfully fought several proposals from Louisiana lawmakers to place more limits on short-term, high-interest loans in 2014. Payday lenders are likely to face increasing federal scrutiny in the years to come. .
(Taber Andrew Bain / Flickr Creative Commons)
It should be one of the easiest promises Louisiana gubernatorial candidates could make: “I’m going to curb the vultures that run the payday loan business and stop them from preying on the working poor.” “
Every day across Louisiana, hundreds of people go through difficult times. As the saying goes, they have more months left than wages. Imagine that your car breaks down. If you can’t get to work, you’ll lose your job, but you don’t have $ 100 for repairs. Instead of going to friends or relatives, you walk into a payday loan office to borrow money until you get paid again.
This is your first mistake because most payday lenders charge exorbitant interest rates compared to traditional lenders (banks that don’t make small loans or lend to someone with poor or no credit. credit). According to Credit.com, “In most cases, the annual percentage rate (APR) of a payday loan averages around 400%, but the [effective] The APR is often as high as 5,000%.
However, it is not the hideous interest rates that hurt borrowers the most; it is their abuse on the part of the lenders who know – and hope – that these loans will not be repaid within the usual 14 days. The real money is rollovers, or “loan attrition,” as lenders call it. According to a September 2013 report from the Center for Responsible Lending, “borrowers take out an average of nine loans per year, paying off $ 504 in fees for $ 346 in principal without churn.”
But back to that $ 100 you need to fix your car. Once inside a payday loan office, here’s what often happens, according to the Federal Trade Commission (FTC): You write a check for $ 115 (the additional $ 15 is the fee for borrowing money). ‘money). “The check teller or payday lender agrees to keep your check until your next payday. When that day arrives, either the lender deposits the check and you redeem it by paying the $ 115 in cash, or you renew the loan and are charged an additional $ 15 to extend the funding for an additional 14 days. “
These loans are usually renewed several times because the borrower often cannot repay the loan and the fees. So begins a vicious circle. “The cost of the initial loan of $ 100 is a finance charge of $ 15 and an annual percentage rate of 391%,” says the FTC. “If you renew the loan three times, the finance charge would go up to $ 60 to borrow the $ 100.”
According to a March 2014 report from the Consumer Financial Protection Bureau, “Over 80% of payday loans are renewed or followed by another loan within 14 days.
You shouldn’t be surprised to learn that Louisiana’s lax payday loan laws (and weak enforcement of existing laws) have led to an explosion of storefront loan desks statewide. In fact, a study conducted by researchers at California State University Northridge found that Louisiana has over 1,000 payday loan websites. In other words, Louisiana has about 700 more payday loan bureaus than McDonald’s franchises.
During the 2014 legislative session, a group of state lawmakers attempted to tackle the proliferation of businesses designed expressly to reap huge profits from the poor. Their legislation, among others, would have capped the interest rate on payday loans at 36%.
Payday lenders and their 40 lobbyists roared in protest. Thus, the sponsors of the bill proposed a compromise: capping the interest rate at 72%. Lenders and their lobbyists refused to budge. Bill, of course, is dead.
We will likely see this fight against in the 2016 legislative session. Without the support of the new governor, however, it is clear who will prevail. Groups defending the working poor are no match for payday lenders and their dozens of lobbyists.
Lenders argue that they are simply providing a service to the poor who have no other source of loans. This is why, they say, their interest rates and fees are so high. But their rates are not high because lenders are afraid to grant subprime loans (high interest rates are not a bug in their business model, it is a feature). A responsible and ethical banker does not lend money to people whom he knows he cannot repay the loan. It’s not about risk; it is about abusing and taking advantage of the poor.
As advocacy group Together Louisiana observed last year, a payday lender that charges exorbitant interest rates “does not“ provide access to credit. ”It’s royalty mining that does a lot economically more harm than good. ” Absolutely right.
If the gubernatorial candidates care about consumers, especially the vulnerable poor, they will commit to reforming the loathsome practices of these shameless loan sharks.
Robert Mann, author and former member of the Senate and Governor of the United States, holds the Manship Chair in Journalism at the Manship School of Mass Communication at Louisiana State University. Read more about him on his blog, Something like the truth. Follow him on twitter @RTMannJr or send him an e-mail at bob.mann@outlook.com.
