Bill would’ve made loans cheaper
“This bill absolutely, positively eliminates the payday loan product. ... It’s not going to eliminate the need.” Larry Murray, lobbyist for Blake Enterprises
The battle over the cost of “payday” loans reignited Monday at the State Capitol, with one bill dying and another banished back to the committee room.
First up was House Bill 239 to cap the annual cost of the short-term loans at 36 percent interest. Turnout for the bill debate packed the House Commerce Committee meeting room.
HB239’s sponsor, state Rep. Ted James, D-Baton Rouge, pitched the legislation as a way to free senior citizens and others from a financial trap by making the loans much cheaper. The payday loan industry countered that the bill would make the borrowing too cheap to sustain its business costs.
“This bill absolutely, positively eliminates the payday loan product. ... It’s not going to eliminate the need,” said Larry Murray, a lobbyist for Blake Enterprises, a Memphis, Tenn., company consisting of 10 finance businesses.
The committee rejected James’ bill, with eight voting for it and 10 voting against it.
Testimony on the bill was lengthy and emotional, with people sharing their own payday loan stories.
Some got into debt following an unexpected financial emergency. Others rescued relatives from the weight of multiple payday loans.
Claudia Hawkins said her late aunt frequented three payday loan businesses, borrowing money by showing a bank statement and handing over a check. When the loan came due, the check always bounced, triggering bank fees.
The cycle didn’t stop, Hawkins said, until she took over her aunt’s bank account.
“This is a long, vicious cycle of debt that too many people in our community find themselves trapped in,” James said.
Payday loan branches are prevalent in Louisiana.
According to Together Louisiana, payday loans resulted in 154,227 bounced checks last year and $145 million in fees and interest.
The idea behind a payday loan is simple. For $20, someone can borrow $100 until his next paycheck. Problems arise when the loan can’t be repaid and borrowers take on new loans to stay afloat.
Soon, they’re awash in debt.
HB239 would lower the cost of that $100 loan to $1.38.
Critics contend payday lenders prey on the poor, locating on the fringes of low-income neighborhoods and tempting residents with the lure of easy money. The lenders counter that their industry is well regulated and offers borrowers a financial bridge that keeps them from bouncing checks.
“The number of loans at a time is the problem,” 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 people get into trouble when they try to juggle loans from multiple payday lenders.
During the committee meeting, state Rep. Hunter Greene, R-Baton Rouge, sparred with many of those critical of payday loans. He tore into a suggestion that payday loan customers could turn to family and friends for money, saying they soon would lose their friends.
“You have people who are thirsty. I’m not sure you fix it by turning off the water supply,” he said.
Greene compared the APR on payday loans with the ones offered for car and house purchases.
“It’s a lot, and it kind of shocks you ... It’s the luxury of not having to pay it all at once,” he said.
After the meeting, James said he will focus on amending a more payday loan industry-friendly bill awaiting debate on the House floor.
He said he faced a wall of opposition in committee, referring to the heavy lobbying contingent on hand for the payday loan industry.
“When you have 45 lobbyists working on something, it’s hard,” he said.
Later in the day, state Sen. Ben Nevers watched as his Senate Bill 84 came up for debate on the state Senate floor and then quickly wound its way to the Senate Finance Committee.
Nevers, D-Bogalusa, was ready with amendments in hand to advance the legislation to the House side of the State Capitol.
The legislation originally proposed capping the loans’ annual cost at 36 percent interest. In the Senate Committee on Judiciary A, the cap on annual interest fees vanished.
The SB84 was amended to become a prohibition against consumers taking out more than 10 payday loans in a year and to set up a database so the state can keep better tabs on how many dollars consumers are borrowing.
Payday lenders had a problem with limiting the number of loans per year as well as the logistics of a database. Now the Senate Committee on Finance will tackle the bill, sending the legislation back through the Senate committee process instead of on its way to the House.
Nevers said he got the word late Monday from Senate leadership that the bill needed another Senate committee hearing. The reason offered was that the database carries a financial cost.
“This came out at 12:55 today, so I guess you can read into that what it’s worth,” he said.
State Sen. Danny Martiny, who amended Nevers’ legislation to revamp it, said he is uncertain how both sides can be made happy.
He said the House also is struggling, with groups such as AARP Louisiana, the Louisiana Budget Project and Together Louisiana unhappy with the legislation that has advanced. House Bill 766 would limit interest when borrowers get behind on payments and allow them to set up a payment plan when they know they are going to fall short on repayment.
“It doesn’t look like it’s going to come out of the House anyway. We’re trying, but both sides are dug in,” said Martiny, R-Metairie.