Community and advocacy groups are calling on Gov. John Bel Edwards to veto a bill narrowly passed by the state Legislature last week, with only high-interest lenders supporting it. Senate Bill 381 would expand triple-digit interest lending by legalizing larger payday loans with longer terms, the groups wrote, “thus making Louisiana’s payday lending problem even worse than it is.”
The new product allowed under this bill would increase the $145 million in fees predatory lenders drain from low-income Louisiana families each year. Payday loans are designed to create a cycle of repeat borrowing; in Louisiana, 87% of payday loans go to borrowers who re-borrow within two weeks of paying back their old loan. This shows how the loans drive borrowers deeper into debt rather than helping them through a cash shortfall. Nationally, payday lenders collect 75% of their fees from borrowers with 10 or more loans per year, indicating the lenders’ reliance on a predatory business model.
“When our lawmakers had the chance to cap payday loans at 36% interest, as 18 other states and DC do in order to clamp down on predatory lending, they instead chose to vote to expand the tools predatory lenders have at their disposal in our state,” said Davante Lewis, Director of Public Affairs and Outreach for the Louisiana Budget Project. “This harmful bill targets Louisiana’s hardworking families who do not deserve their scarce wealth stripped by a machine designed to trap them. The governor should immediately veto this bill.”
The bill would increase the amount payday lenders can loan from $350 to $1,500, and would allow loans with terms of 3 to 12 months at annual interest rates upwards of 300%. These high-interest loans make it difficult for borrowers to keep up with their other bills and force insufficient funds fees and overdraft fees, often to the point of their bank accounts’ being closed. Borrowers end up in bankruptcy at higher rates than similarly-situated families who haven’t taken out payday loans.
