The federal consumer watchdog agency finalized long-awaited rules Thursday aimed at reining in predatory payday lenders that provide short-term, high-interest loans to the financially vulnerable. The rules from the Consumer Financial Protection Bureau will require payday and car title lenders to take into account a borrower’s ability to repay debt, and restricts the ability to take out successive loans. .. The Washington Post’s Renae Marie  has more:

The CFPB says it still expects more than 90 percent of payday borrowers to be able to obtain a loan, but it has been highly critical of the industry, which the agency says profits from trapping cash-strapped workers in a vicious cycle of borrowing. For example, the CFPB has said that about 80 percent of payday loan customers don’t pay off their first loan and have their debt rolled into another loan. About 45 percent of payday customers take out at least four loans in a row.  And the loans often come with steep fees. Borrowers pay a median $15 in fees for each $100 they borrow, amounting to an annual percentage rate of 391 percent on a median loan of $350, according to the CFPB.

While the rules are a major step in the right direction,  LBP’s Jan Moller explains that state regulations are still the most effective way to stop the payday lending debt trap by capping the rates that lenders can charge.

“This new rule has the potential to bring common-sense requirements to a payday lending industry that knowingly traps thousands of Louisianans in long-term cycles of debt at 391 percent annual interest. But Louisiana families still need our state lawmakers to strengthen consumer protections,” said Jan Moller, director of the Louisiana Budget Project. “Left unchecked, payday and car title lending drains over $200 million every year from Louisiana’s economy and often causes bankruptcy, bank account overdrafts and delinquency on other bills. While the CFPB cannot legally cap the interest rate on payday lending – the most effective measure to stop the payday lending debt trap – our state lawmakers can and should cap these loans at 36 percent APR.”

Revenue shortfalls becoming more common

Although America’s economy continues to grow, the National Association of State Budget Officers reports that 22 states faced budget shortfalls in 2017, and more states grappled with mid-year gaps than in any year since 2010. Louisiana is all too familiar with revenue shortfalls, having struggled with 15 mid-year shortalls in the last nine years. As Elizabeth McNichol and Samantha Waxman with the Center on Budget and Policy Priorities report, there are a number steps states can take to manage and prevent revenue shortfalls, including addressing structural problems in state revenue systems:

Antiquated tax systems ill-suited to the 21st century economy hamper states’ ability to restore school funding, cope with cuts in federal support, and invest in the future. For instance, many states primarily levy sales taxes on tangible goods, even though services — many of which didn’t exist when sales taxes were enacted, such as video streaming — make up a growing share of consumption. States can halt the erosion of their sales taxes and improve their long-term ability to invest in state priorities by broadening the sales tax to include more services. In addition, states should diversify revenue sources, including sales, excise and/or income taxes, each of which responds differently to economic changes, to improve the stability of tax collections.

Erica Williams with the Center on Budget and Policy Priorities outlines a four-point fiscal blueprint for building thriving state economies:

Forced arbitration is bad policy

In the months following a massive data breach that allowed hackers to steal sensitive, personal information of more than 143 million Americans, Equifax – a massive consumer credit reporting agency – had one thing on its mind: how to limit consumers’ ability to bring their disputes against the agency to court. Chris Odinet, an endowed assistant professor of law at the Southern University Law Center and an LBP board member, explains in a guest column for The Advocate  that consumers almost never benefit from the use of forced arbitration and its use undermines our constitutional right to trial by jury.

Lobbyists are claiming that we shouldn’t let people who have been wronged by a big bank choose whether to go to court or use arbitration because consumers do better in arbitration, winning $5,389 on average. But that’s only for the 16 people a year who have unusually big cases and who win. Most people can’t afford to take on a big bank alone, and those who do usually lose: The average person in arbitration actually ends up paying the bank or company $7,725. That’s like saying that a baseball team that has a 33-129 record “wins by 5 runs on average.”

Big banks have lobbyists who are fighting on their behalf, while citizens are supposed to rely on their elected officials. But as Melissa Lonegrass explains, the most powerful lawyer in Louisiana is siding against the constituents who elected him.

Attorney General Jeff Landry recently joined Equifax and a who’s who of Wall Street lobbyists in attacking a rule from the Consumer Financial Protection Bureau, the watchdog agency, addressing forced arbitration clauses buried in the fine print of financial service contracts. … As Louisiana’s chief legal officer, Landry should not support a legal maneuver that strips Louisianans of their rights.

Child poverty has fallen to record low, once government aid is counted

Opponents of federal safety-net programs often point to the stagnant federal poverty rate and wrongly  conclude that major entitlement programs have had little to no effect on reducing the number of poor children. But when using the Supplemental Poverty Measure (SPM), a measure that provides a more complete picture on poverty by assessing the impact of government assistance, a different story emerges. Isaac Shapiro and Danilo Trisi from the Center on Budget and Policy Priorities explain what the child poverty rate looks like when using the SPM.

The child poverty rate fell to a record low of 15.6 percent in 2016, a little more than half its 1967 level of 28.4 percent. … The data show that the near-halving of the child poverty rate since the late 1960s is largely attributable to the creation or expansion of various safety net programs, particularly SNAP and two major refundable tax credits.  When poverty is measured without counting the income that safety net programs provide (i.e., under the official poverty measure), child poverty has fallen significantly the last two years as the labor market tightened, but is only modestly lower than it was in the 1960s.  But once these benefits are taken into account, a large decline in child poverty is evident.  

Number of the Day
9.5 million:  Number of additional children who would be living in poverty if the poverty rate had remained unchanged since 1967. (Source: CBPP)