Letter: Payday loans responsible

Many Louisiana residents face financial shortfalls every day — a child needs to see a doctor or a bill comes due before payday. For many with limited credit options, a payday loan is the most affordable and reliable option to get through these rough patches.

Payday loans provide small-dollar, short-term credit for unanticipated expenses. Many working families choose this service because it’s simple and the costs and terms are fully disclosed.

For a two-week loan, customers must show identification, a source of income and an active bank account. The loan amount is based on the customer’s ability to repay. Lenders in Louisiana typically charge a one-time, flat fee of $20 to borrow $100 — there’s no compounding interest and no impact on a borrower’s credit rating.

Most importantly, the majority of customers use payday loans responsibly, choosing our loans over pricier alternatives. Paying $20 to borrow $100 from a lender can mean avoiding the $35 median fee for overdrawing a checking account or the $50 reconnection fee from the Baton Rouge Water Co. Customers are overwhelmingly satisfied too: 98 percent of borrowers are satisfied with their experience, according to a recent Harris Interactive survey.

State-regulated lenders are committed to helping consumers be successful borrowers. We provide strong consumer protections, including transparent terms and fair collection practices. Louisiana law further protects borrowers by setting a $350 maximum loan amount.

Some Louisiana lawmakers are trying to limit fees to $1.38 per $100 borrowed, 10 cents a day for a two-week loan. Others want to restrict the number of times an individual can borrow. If these laws are approved, many Louisianians would lose access to a service they count on to make ends meet.

After Georgia and North Carolina effectively banned payday lending through the same rate cap proposed in Louisiana, the New York Federal Reserve found consumers, faced with the same financial challenges but fewer options, “bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 (‘no asset’) bankruptcy at a higher rate.”

A limit on the number of times a person can borrow will carry similar negative consequences. Laws cannot dictate individuals’ credit needs. Consumers facing a hardship after reaching the loan limit would be forced into riskier options such as unregulated, costlier online loans that offer no consumer protections.

Payday loans help to bridge a gap in the credit market, and are an effective tool for many people. It would be unfortunate if the state Legislature ignores consumers’ interests and takes them away, leaving hardworking Louisianians to suffer the consequences.

Troy McCullen

president Louisiana Cash Advance Association

Baton Rouge