An effort to establish new payday loan options narrowly failed in a House committee on Wednesday as lawmakers disagreed on how best to serve consumers while protecting them from crippling debt and predatory loans.
Senator Rick Ward III’s Senate Bill 365, R-Port Allen, sought to establish a new payday loan product offering loans between $ 500 and $ 875 with terms of three to 12 months. The state’s current payday loan system allows lenders to offer a maximum of $ 350 for a period of up to 30 days.
The bill failed in a 7-9 vote that crossed party lines as members of the House Commerce Committee scrambled to draw a line between meeting the desperate financial needs of residents and expose them to lending practices that could make them worse.
In addition to creating a new loan option, SB365 would create a government database to track consumer short-term loans, allow consumers to take out only one short-term loan at a time, cap loan repayments at 20% of gross monthly income and would have a maximum annual percentage rate, or APR, of 167 percent.
Some felt that the measure, touted as “user-friendly” compared to existing payday lending practices, was still detrimental to consumers.
“Would I be considered a thieves friend if I used a .38 (firearm) instead of a .45 to steal from you?” No, it’s always the same, ”said Edgar Cage, leader of Together Louisiana.
The measure was aimed at preventively countering the new rules issued by the Consumer Financial Protection Bureau, or CFPB, which will come into full force in August 2019. The new rules limit short-term loans of small dollars whose interest rates rise. average around 300. percent but may exceed 700 percent. The new rules would require lenders to ensure borrowers can repay the full loan amount on time while also covering other financial obligations and basic living expenses, among other requirements.
The increased restrictions would eliminate between 80 and 90 percent of all payday loans issued in the state, said Larry Murray with Advance America, the nation’s largest provider of small dollar loans and other cash advance services . The bill was opposed to the Louisiana Payday Loan Association, an advocacy group for local lenders.
Opponents argued the measure is premature because resolutions to overturn the new CFPB rules go through Congress.
Murray said the annual percentage rate reduced; longer loan terms and greater oversight allowed the proposed loan to meet new federal guidelines while filling a potential gap in the market. While still boasting a triple-digit APR rate, the bill offered a more “user-friendly” option over the existing payday loan structure, Ward said.
Representative Edmond Jordan, D-Baton Rouge, questioned the ambivalence of the proposal. Offering a higher interest loan that is less predatory than the payday loans in the market does not make the proposition less damaging to borrowers.
“You can put a nine inch knife behind my back and pull it out six and you can’t call that progress. I still have a knife on my back, ”Jordan said.
Murray said payday lenders are being misrepresented as vultures taking advantage of vulnerable people.
Ward said the 167 percent APR rate would be the maximum rate allowed, and that competitive payday lenders could offer lower rates to attract business. The 167% rate was set because that’s what many lenders said they would need to be profitable, he said.
Murray also said that most lenders are unwilling to offer loans when the risk of default is high. Making sure borrowers can repay their loans with interest is in the best interest of payday lenders, he said.
Ward said that while short-term, high-interest loans aren’t something everyone likes, they are a necessity. For people with poor credit, scarce or insufficient income, and no friends or family to step in as a reasonable loan alternative, not having payday loans available when a sudden financial crisis strikes could be ruinous, he said. he declares.
“We can live in a country where we think it just shouldn’t exist. It’s the perfect world, but it’s not the reality, ”Ward said.
Opponents disagreed, saying reasonable alternatives, such as credit unions, exist. Ronaldo Hardy, managing director of Southern Louisiana Credit Union in Lake Charles, said credit unions offer lower interest rates for comparable loan amounts and terms, with the added benefit of financial literacy services. .
Most borrowers choose payday lenders because they act in a rush and don’t know their options, Hardy said. Credit unions are nonprofit, member-funded financial cooperatives that manage deposits, offer loans, and manage savings, among other services.
Representative Chad Brown, D-Plaquemine, said pitting credit unions against payday lenders is not a comparison of apples to apples and that if credit unions provided a superior service, they would have a monopoly in the field. .
Harvey’s Democratic representative Rodney Lyons said that while he supports credit unions, there is a constituency for payday loans that credit unions and other financial institutions do not reach. Ward said existing data shows that about 20,000 residents use payday loans each year.
Vote for payday loan options (7): Representatives John “Andy” Anders, D-Vidalia; Chad Brown, D-Plaquemine; Patrick Connick, R-Marrero; Paul Hollis, R-Covington; Rodney Lyons, D-Harvey; Kevin Pearson, R-Slidell; and Eugene Reynolds, R-Minden.
Voted against SB365 (9): Representatives Thomas Carmody, R-Shreveport; Jean-Paul Coussan, R-Lafayette; Kenny Cox, D-Natchitoches; Cedric Glover, D-Shreveport; Stéphanie Hilferty, R-Metairie; Patrick Jefferson, D-Homer; Edmond Jordan, D-Baton Rouge; Christopher Léopold, R-Belle Chasse; and Stephen Pugh, R-Ponchatoula.