Below are some quick facts about the payday lending industry in Louisiana, compiled by LBP analyst David Gray.
PAYDAY LENDING RESULTS IN LONG-TERM DEBT TRAP
- According to industry representatives, payday lending is designed to trap borrowers in long-term cycles of debt:
“The theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.” – Dan Freeman, CEO of Cash America
“In a state with a $15 per $100 rate, an operator… will need a new customer to take out 4 to 5 loans before that customer becomes profitable.” – Stephens Inc.
- A typical Louisiana borrower will need to take 9 payday loans each year to pay off their original debt, resulting in $270 in fees for a one-time $100 loan.
- The annual percentage rate for a payday loan in Louisiana is 780 percent, compared to an annual percentage rate of 24 percent for major credit cards.
ECONOMIC IMPACT AND PREVALENCE OF PAYDAY LENDING IN LOUISIANA
- The payday lending industry drained $46 million from the Louisiana economy in 2011.1
- Louisianans paid between $181 million and $196 million in fees to payday lenders in 2011.2
- The payday lending industry resulted in a 671 net job loss in 2011.3
- There are four times as many payday lenders in Louisiana as McDonald’s Restaurants.4
- Louisiana has an average of one payday lending storefront for every 4,800 residents.5
EFFECTIVENESS OF PAYDAY LENDING ALTERNATIVES6
- Twenty-three states and Washington D.C. have firm payday lending regulations (see bottom).
- Without payday loans, potential borrowers would choose alternatives that do not connect them to a financial institution, such as adjusting their budgets, delaying bills and borrowing from family and friends.
- States that enacted strong consumer finance protections against predatory payday loans experienced sharp declines in payday loan usage. Ninety-five percent of customers elected not to use payday loans, while only five percent sought payday loans online or elsewhere.
EFFECTIVE CONSUMER FINANCE PROTECTIONS
- Capping annual interest rates for payday loans at 36 percent. (Example: North Carolina)
- Prohibiting borrowers from taking more than 8 loans in a 12-month period. (Example: Washington state)
- Requiring minimum repayment terms of 6 months. (Example: Colorado)
- Prohibiting payday loans to active members of the Louisiana National Guard. (Example: United States)
INEFFECTIVE CONSUMER FINANCE PROTECTIONS
- Allowing customers to cancel payday loans by returning the loan the same day.
- Allowing customers to receive a rebate for repaying their payday loan in full.
- Allowing residents to request free extensions of their payday loan.
- Allowing the payday loan industry to charge annual percentage rates above 36 percent.
- Allowing customers to take more than 6 payday loans per 12-month period.
LEGAL STATUS OF PAYDAY LENDING BY STATE
|States Without Payday Lending||Strong Consumer Protections||No Meaningful Consumer Protections|
|District of Columbia||Maine||Hawaii|
1. Insight Center for Community Economic Development. “The Net Economic Impact of Payday Lending in the U.S.” March 2013.
2. Center for Responsible Lending. “Payday Lending Abuses and Predatory Practices.” September 2013; Insight Center for Community and Economic Development.
3. Insight Center for Community Economic Development.
4. LBP calculation based off number of payday loan storefronts and McDonald’s Restaurants in Louisiana as of July 2013.
5. LBP calculation based off number of payday loan storefronts in Louisiana and state population as of July 2013.
6. The PEW Charitable Trusts. “Payday Lending in America: Who Borrows, Where They Borrow, and Why.” July 2012.