‘Payday’ loan bill clears panel, to limit interest

The first of a series of bills aimed at lowering the cost of “payday” loans cleared a Louisiana House committee Monday in a cloud of controversy.

AARP and the Louisiana Budget Project complained House Bill 766 does not go far enough in protecting borrowers. The bill’s sponsor, state Rep. Erich Ponti, disagreed, saying the legislation will help borrowers get out of a trap.

The House Commerce Committee advanced HB766 to the House floor. The Senate Committee on Judiciary A will tackle separate payday loan legislation Tuesday.

Organizations such as AARP and Together Baton Rouge pushed legislators to make changes to the controversial loans.

They said borrowers often pay fees that are too high or get caught in a cycle of taking out more loans to repay the loans they already have.

The payday loan industry counters Louisiana already has protections in place because loan renewal fees are forbidden and interest rates are capped.

The concept behind payday loans is simple. Customers borrow a small amount of money and repay it in a short period of time — typically two weeks or a month.

To get a loan, customers write a check for the amount of the loan, plus fees. Lenders hold onto the check until the borrower’s next payday.

Borrowers are typically charged between $20 and $55 for each transaction, and are subject to rates that reach as high as 700 percent when calculated annually.

Ponti’s bill got a rewrite, producing legislation that limits interest when borrowers get behind on payments and allows them to set up a payment plan when they know they are going to fall short on repayment.

Jabo Covert, of Check Into Cash, said the bill mirrors what is done in other states to help people who are in debt.

“Instead of getting into the trap, this allows (them) to get out of the trap,” Ponti said.

Andrew Muhl, advocacy director for AARP, said the bill fails to address the payday lending industry’s “exorbitant fees.”

His organization wants a 36 percent cap on payday APR rates.

“The recession has hit older adults who live on a fixed income especially hard. Many have turned to payday lenders in order to pay for their utilities, medicines and groceries and now they are stuck in debt,” Muhl said.

Jan Moller, executive director of the Louisiana Budget Project, characterized HB766 as an industry bill, saying it “adopts policies that have been tried in many other states and do not protect families from the trap of long-term debt.

Like Muhl, Moller wants to cap the APR at 36 percent.

The Associated Press contributed to this report