Don’t look for a repeat of last year’s high-profile payday lending fight in the 2015 legislative session.
Hundreds of church leaders and community activists filled the halls during the 2014 legislative session and rallied on the State Capitol steps in hopes of reining in the practices of an industry that locates mostly in low-income neighborhoods and offers short-term loans at high prices. Despite the pressure for consumer safeguards, Louisiana legislators ended up passing a new law, which went into effect on New Year’s Day, that better protects payday lenders.
Disappointed consumer advocates say they don’t anticipate taking another run at the issue when legislators convene again in April.
“Legislators spoke loud and clear: They did not want to restrict these loans. I don’t agree with that decision,” said Jan Moller, director of the Louisiana Budget Project, a Baton Rouge-based, liberal-leaning advocacy group for low- and middle-income families. The group was one of the chief proponents of better regulating payday loans.
“Clearly, we tried as hard as we could to educate politicians about the destructiveness of these loans and how to protect consumers, but the industry prevailed,” Moller said, adding that a rerun would be futile unless many lawmakers have had a change of heart, and there’s no sign of that.
Louisiana Payday Loan Association lobbyist Danny Ford said he doesn’t expect any state activity on the issue this year, based on conversations he’s had with legislators. If legislation does surface, he said, he does not anticipate debate will be “as harsh as last time.”
The upcoming session will focus on state fiscal matters, and the rules limit legislators to introducing only five bills that don’t deal with finances. “I don’t think anybody wants to give up one of their five bills to get into that fight again,” Ford said.
Certainly, Democratic state Rep. Ted James doesn’t.
“I don’t know that I want to use one (of the five bills) on something that’s going to go down,” James said. His north Baton Rouge district has a lot of the payday loan shops.
Last year, James cosponsored consumer measures that ultimately failed. The legislation, as introduced, would have capped interest rates at 36 percent. In hopes of winning support, James changed the bills to limit consumers to taking only 10 such loans per year.
“I would love to see lower interest rates,” James said. “I want the Office of Financial Institutions to really regulate these folks. They just let these guys slide.”
A legislative audit report issued after the 2014 legislative session concluded the state Office of Financial Institutions, which is charged with regulating lending institutions, is failing to properly oversee payday storefronts. The report referred to thousands of cases in which the firms appeared to engage in questionable lending practices.
Payday loans involve customers who borrow a small amount of money, typically a couple hundred dollars, and are asked to repay it in a short period of time. Generally, customers write a check for the amount of the loan, plus fees. Lenders hold on to the check until the borrower’s next payday. Borrowers often make multiple loans and are typically charged between $20 and $55 for each transaction. The rates can reach as high as 700 percent when calculated annually.
More than 300 payday lenders operate out of nearly 1,000 locations in Louisiana.
AARP Louisiana, Together Louisiana and many religious leaders sought change, saying current practices leave the poor and elderly in a cycle of debt that is hard, if not impossible, to escape.
The industry counters that payday lending offers consumers access to small amounts of cash for a short term. More than nine in 10 payday loan borrowers report favorable experiences with the terms and cost, according to the Community Financial Services Association of America.
The only legislation to survive and become law was an industry-supported bill sponsored by state Rep. Erich Ponti, R-Baton Rouge. The new law makes all lenders play by existing rules. Online lenders will have to follow the same regulations as businesses with brick-and-mortar locations in Louisiana.
The federal Consumer Financial Protection Bureau is working on new national regulations covering the payday loan industry that are expected to include features of legislation killed in the 2014 Legislature.
The Consumer Financial Protection Bureau was established by Congress in 2010 to protect consumers. It writes rules, supervises companies and enforces consumer finance protection laws.
Its work is being monitored by the payday loan industry as well as consumer groups,
“At the federal level, they are trying to come up with some fairly strong regulations,” said Dianne Hanley, a representative of the grass-roots citizen coalition Together Baton Rouge. “We are watching that very closely. They (the Consumer Financial Protection Bureau) are taking their time with it because it needs to be tight.”
The main federal push is to cap interest rates at a 36 percent interest rate, she said.
Hanley said she also is hoping that more pressure is exerted on the state Office of Financial Institutions to investigate complaints and hold payday lenders accountable. “It’s another way to go,” she said.
Andrew Muhl, advocacy director for AARP Louisiana, said the hope now is for a nationwide solution so there would be no need for a Louisiana-specific law.
Louisiana Payday Loan Association lobbyist Ford said he doesn’t know what kind of recommendations will come out.
“But with the changes in Congress, who knows what will be implemented?” Ford said, referring to changes in the makeup of the U.S. House and Senate. “No telling what’s really going to come out of that.”