Payday loan bill moves to Senate

State Sen. Ben Nevers wanted to make “payday” loans cheaper in Louisiana by limiting the amount of interest that can be charged annually.

By the time Senate Bill 84 emerged from the Senate Committee on Judiciary A on Tuesday, it was a dramatically different proposal. The cap on annual interest fees disappeared.

In its place is a prohibition against consumers taking out more than 10 payday loans in a year. The committee also added language setting up a database so the state can keep better tabs on how many dollars consumers are borrowing.

Nevers, D-Bogalusa, agreed to the changes and vowed to work on the bill before it hits the Senate floor. The bill advanced without objection.

“It’s not something that I prefer, but I’m also someone who’s been here awhile and understands what it might take to get this bill out of committee,” he said.

Neither the proponents nor the opponents appeared pleased with the makeover.

After the committee meeting broke, payday lenders huddled with their lobbyists at one end of a State Capitol hallway while Together Louisiana gathered payday loan clients at the other end of the corridor.

“Both sides left that room in shock. No one’s happy,” said Troy McCullen, president and CEO of Finance America Business Group, which owns 31 Cash-2-U lenders across Louisiana, including locations in Baton Rouge, Zachary and LaPlace.

McCullen said something needs to be done about people who carry too many short-term loans at the same time. He said capping the number of loans per year is like limiting the number of six-packs someone can buy from a liquor store. It removes the free market, he said.

Dianne Hanley, a leader in the grass-roots organization Together Louisiana, said she still wants a 36 percent ceiling on the annual percentage rate. She said her group will focus on the yet-to-be-debated House Bill 239, which would do just that.

“I’m happy a bill is still alive on the House side,” she said.

Payday loan businesses are a big industry in Louisiana. Legislation to change the way they operate is stirring up controversy.

The transactions are known as payday loans because the idea is to borrow a little bit of money and pay it back with the next paycheck.

Critics of the short-term loans contend they are too expensive, making them predatory and trapping consumers into taking out more loans to pay the previous ones. AARP, Together Louisiana and other organizations want to cap the fee that can be charged annually at 36 percent interest. The Senate committee saw examples of the annual percentage rate at 200 percent and even 477 percent.

Dana L. Jones, of Baton Rouge, told legislators that she discovered payday loans when her mother needed medicine costing $600 a month. The family divvied up the expense. At a cousin’s suggestion, Jones took out a $50 payday loan to cover her share.

Soon, she said, she was borrowing $100 and then $300 to cover previous loans and fees. Eventually, she juggled four to five loans at the same time. She estimates that she spent thousands of dollars to borrow very little.

“You don’t think of it that way. You think you’re getting a small, temporary loan,” Jones said.

Nevers said it’s not just a few people who are running into problems. He said tens of thousands are getting into trouble.

“Many people often refer to payday lending as predatory lending,” he said. “I believe that we have to put a stop to predatory lending.”

Helen Godfrey-Smith, president and CEO of Shreveport Federal Credit Union, said the payday loan model traps people in debt and enhances the lenders’ profits. She said the payday loan businesses are less regulated and have lower costs than credit unions, allowing them to have more storefronts.

“You pass by the payday loan store before you even think about the credit union,” she said.

The payday loan industry warned legislators that Nevers’ original bill would put them out of business.

Bernad Gibbs, who owns 10 payday loan businesses in Louisiana, said he made over 71,000 loans in 2012. The average cost to the borrower, he said, was $37.27.

“It takes a loan of almost $150 for us to break even. We do loans that are different,” Gibbs said.

He said he employs 36 people and estimated that payday loans are a $465 million industry in Louisiana.

“If this bill passes, and it is your intent to close the payday loan industry, then that’s exactly what you’re going to do,” Gibbs said.

Jabo Covert, vice president of government affairs for Check Into Cash, said payday loans already are a tightly controlled product with a lot of regulation for a small product.

“This product is very popular. It is very, very popular. There’s a reason there’s so many of us,” he said. “It works for our customers.”

Covert said Nevers’ proposal asks payday lenders to loan $100 for a dime a day. At that rate, he said, payday loan shops won’t be in business for very long in Louisiana.

A number of committee members seemed to share Covert’s concern. State Sen. Conrad Appel, R-Metairie, expressed doubt that borrowers are confused about the large amount of interest they will pay when they get a payday loan.

“Odds are we are going to lose a substantial number of payday lenders if we do this. Is that a good thing or a bad thing? I don’t know,” Appel said.

State Sen. Danny Martiny, R-Metairie, offered the amendment that no one seemed to like but the committee ultimately accepted.

Martiny said he had no choice. Keeping in the 36 percent cap would kill the payday loan industry. As he spoke about the need for a database to track the loans, industry members shook their heads in protest.

“As long as we work toward compromise between here and the floor, I won’t object,” Never said.