Payday Lending in Louisiana - United Way of Southeast Louisiana

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Payday Lending in Louisiana

Jan Moller jan@labudget.org

225-819-7715

About the Louisiana Budget Project

An independent, nonpartisan organization that:

Analyzes how state budget decisions impact low and moderate-income families

Encourages citizens to be vocal about issues that impact their lives

Provides timely research and analysis to drive policy debates

Poverty is a daunting problem

Compared to other states, Louisiana has:

• 3rd highest rate of poverty (nearly 20 percent)

• 4 th highest rate of child poverty (28 percent)

• 8 th lowest median household income (slightly less than $43,000 a year)

• 12 th lowest health insurance coverage, which also puts families at higher financial risk

Recent trends are troubling

State of working is uncertain

Wages have been stagnant or falling for years

Since 1979, median wages have increased

1 percent, productivity is up 35 percent

Stark disparities remain

Continuing racial and gender disparities in education, employment opportunities and wages add another layer of challenges

No easy answers

Affordable child care and pre-K can improve outcomes for children and remove barrier to employment for parents, but current programs do not meet current needs

Higher education is the key to a good-paying job--yet state support has been slashed 66 percent since 2009, while tuition has spiked

Some programs are helping

Louisiana is one of about 25 states with its own Earned Income Tax Credit (EITC) to boost incomes of low-wage workers

Currently, Louisiana’s EITC puts $45 million a year back into working families’ pockets

But it is the lowest in the nation--3.5 percent of the federal credit compared to national average of 16 percent

What is Payday Lending?

Payday loans are high interest loans that vary between $50 and $350.

Full payment is due on the individual’s next payday , normally in two weeks.

A typical $100 payday loan in Louisiana costs $30

( APR* = 782.14% ).

782%

Comparison of APRs

800%

700%

600%

500%

400%

300%

200%

100%

0%

25%

7% 10% 10%

Payday

Loans

Credit Card 30-Year

Mortgage

Auto Loan Student

Loan

*APR is the adjusted value of a short-term interest rate if applied over a whole year.

What is Payday Lending

Since most payday users live paycheck to paycheck, they cannot afford to both repay the entire loan and still have enough money for necessities like groceries and rent.

The average person recycles his loans 9 times per year

Amount borrowed:

Payday Loan Fee:

Recycled Loans:

Total Fees Due:

$100

$ 30

9

$270

This customer paid $270 for a single $100 loan.

The Debt Trap

As payday users begin recycling their debt…

…payday lenders become more profitable.

New loans made within a two week period 76%

Loans to onetime users 2%

Initial loans to repeat users

11%

New loans after

14-30 day pause

6%

New loans after

30 day pause 5%

Payday Lending in Louisiana

LA has a high concentration of payday lenders

There is one payday lender for every

4,600 citizens.

There are four times as many payday lenders as McDonalds .

1200

Payday Lenders vs.

McDonalds

993

1000

800

600

400

200

0

Payday Lenders

248

McDonalds

Who’s Likely to Take a Payday Loan

Effects of Payday Lending

In addition to falling into the debt trap, payday borrowers are at a greater risk of –

Involuntary bank account loss due to overdraft

Higher rates of bankruptcy

Delinquency on other bills

Payday lending also impacts the community

Drains money from local economies

Leads to job loss

Increased rates of vandalism and foreclosures

Payday Loan Regulations

Military Lending Act (2007)

APR for consumer credit to service members capped at 36% for

• traditional payday loans less than 90 days

• car title loans less than 180 days

According to the Department of Defense, “Predatory lending undermines military readiness , harms the morale of troops and their families, and adds to the costs of fielding an all volunteer fighting force.”

IF THE MILITARY NEEDS PROTECTION, DON’T YOU?

Payday Loan Regulations

Payday loan regulations vary by state. In the South:

• Six states allow payday lending (22 nationally),

• Two states regulate payday lending (8 nationally), and

• Three states ban payday lending (15 nationally)

Louisiana Regulations

Deferred Presentment and Small Loan Act

Limits payday loans to a maximum of $350.

Allows lenders to charge a maximum fee of 16.75 percent, up to $45

Act 668 (2010) increased documentation fee to $10 from $5

Refinance after paying 25 percent of the principal plus additional fees

If a consumer defaults on a loan, the lender can:

Charge 36 percent interest for the first year

Charge 18 percent interest for each following year, or a one-time delinquency fee of $10 or 5 percent of the amount borrowed

Better Protections

Cap payday loan APRs at 36 percent

Limit borrowers to six loans per year

Restrict lenders from over-concentrating in areas

Ban payday lenders from municipalities

Create a centralized computer database to track lending

Mandate annual reporting of payday lending

Require lenders to post consumer warnings

Alternatives to Payday Lending

Nonprofit cash assistance programs

Government assistance programs

Utility payment assistance programs

More affordable credit union or bank products (Caution!)

Begin savings plan (find non-profit matching program)

Alternatives to Payday Lending

Payment plan with creditors

Paycheck advance from employer

Seek help from consumer credit counselor

Deal with your debt

Recap of Today’s Workshop

We discussed four principles for building wealth:

Spend less money than you earn

Save as much as possible

Build good credit

Protect your wealth when you accumulate it

We discussed the dangers of payday loans and alternatives to predatory lending

Payday Lending in Louisiana

David Gray / david@labudget.org

Ashley Herald / ashley@labudget.org

Emma Dixon / emeralddixon@hotmail.com

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