IN MY SEARCH FOR COMMERCIAL office space in years past, I was shocked to see so many payday loan storefronts in Baton Rouge, many in very close proximity to one another. Indeed, payday lending storefronts out number McDonald’s restaurants in Baton Rouge 4 to 1. I wondered how two identical businesses, some literally next door to each other, could both thrive in the face of competition in such close Quarters.
It turns out that payday lending is an extremely profitable business in Louisiana. According tot the Center for Responsible Lending, nonprofit organization dedicated to fighting predatory lending practices, Louisianans paid between $181 million and $196 million in fees to payday lenders in 2011.
Payday loans are generally marketed as quick cash for consumers who need a little extra money to tide them over until their next payday. The repayment period is usually 14 days. However, the profitability of payday lending companies relies on repeat customers getting entrapped in never- ending cycles of debt as they take out additional loans while they struggle to repay existing loans, fees, and their current bills.
Recognizing the need for payday lending reform, lawmakers have proposed bills in the upcoming legislative session to enact tougher restrictions on payday lending businesses, which, under current state laws, are allowed to charge exorbitant interest rates and fees up to 700%. The proposed legislation by State Rep. Ted James (D-Baton Rouge) and Senator Ben Nevers (D-Bogalusa) would cap interest rates on payday loans at 36% annually. This legislation mimics the Federal Military Lending Act’s 36% cap on loans to active duty military members and their families.
Advocates on both sides of the issue have begun to weigh in as the March 10 commencement of the legislative session nears. Supporters of reform include organizations that represent the elderly, poor and others on fixed incomes. These supporters argue that the predatory lending practices employed by payday loan companies impose a drain on the Louisiana economy, and result in an increase of negative financial outcomes for consumers, which include an increase in job loss and bankruptcies.
Opponents of reform argue that payday loan companies provide an essential service to their consumers, who usually have credit problems that prevent them from qualifying for traditional loans at financial institutions with more stringent credit worthiness criteria. It does beg the question, would these companies be able to thrive if there was not a high demand for their services? More importantly, are there viable alternatives for consumers who need quick cash, or who are unable to make ends meet from paycheck to paycheck?
Supporters of reform advocate for alternative options such as seeking short-term financial assistance from family members, churches and social service organizations; asking creditors for extensions on due dates; and enrolling in consumer credit counseling plans, which can negotiate lower interest rates and monthly payments on credit card bills. Employers may also be willing to provide a payday advance or overtime work. If feasible, consumers can seek a second part-time job to increase income, while simultaneously eliminating any non-essential expenses. Additionally, while not an ideal option, most credit cards offer cash advance options, the fees for which are usually still lower than payday loan fees.
Congress recognized a need for consumer protection from predatory lending for military families, and subsequently enacted the Military Lending Act. Ordinary citizens deserve the same protection. While predatory lending practices may garner large profits for payday loan businesses, we should not let the profitability of a few come at such a detriment to the state economy and its most vulnerable citizens.
More information on the proposed legislation, House Bill 239 and Senate Bill 84, can be found here.
Kenesha Antoine, Esq. is owner of the Bluest Ink Notary and Legal Services in Baton Rouge