Our Views: A better loan system

In the case of the payday lending industry, the Legislature’s failure to act on reports of abuses to consumers is looking worse and worse every day.

After the payday loan companies hired a slew of lobbyists, the only bill on the controversial practices of lenders was one bill that requires online lenders to register with the state.

Left alone was the existing limited regulation in law.

Turns out that today’s regulatory scheme is full of holes.

State regulators let payday lenders slide on more than 8,000 “major violations” over a three-year period, the Louisiana legislative auditor reported. No fines were assessed against lenders in the 30 months ending June 30, 2013.

The Office of Financial Institutions is supposed to be the oversight body for the 965 payday loan storefronts.

The auditor’s report does not provide conclusive proof that “rollover” loans, banned by existing state law, are still being performed at payday shops. The rolling over of existing loans into new ones, with fees and high interest rates, is one of the reasons consumer groups and the faith-based organization Together Louisiana crusaded this year for tougher regulation.

Critics say the industry lures borrowers to fall into “a cycle of debt,” from which they find it difficult to recover. Backers say the loans provide a source of ready cash to help consumers with short blips in their cash flow.

While we were concerned about any increasing regulation of business activity, it seemed that payday lenders should be at least subject to the same kinds of restrictions on lending that are applied to credit unions and banks. Yet that is what a phalanx of lobbyists objected to, noting all the while the existing OFI regulation.

With more than 8,000 major violations under its belt, maybe it’s time the industry came up with a better argument.

The industry’s response to the auditor’s report is that, even if OFI does not levy fines, the payday lenders can and do refund loans when problems occur. Is that enough? We wonder, and given the threat of rollover loans to the fragile finances of the borrower, if the state regulatory scheme ought to be reassessed by next year’s Legislature.

The auditor found the 965 payday stores, mostly in low-income neighborhoods across the state, issued more than 3.1 million loans and collected $145.7 million in fees during 2013. So the typical $300 advance on a paycheck — plus fees — for the borrowers adds up fast.

We urge the Legislature to look past the well-cut suits of their lobbyist friends and provide a level playing field for consumer lending in the state.