payday lending in louisiana jan moller [email protected] 225-819-7715
TRANSCRIPT
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)
• 4th highest rate of child poverty (28 percent)
• 8th lowest median household income (slightly less than $43,000 a year)
• 12th 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%).
*APR is the adjusted value of a short-term interest rate if applied over a whole year.
Payday Loans
Credit Card
30-Year Mortgage
Auto Loan
Student Loan
0%
100%
200%
300%
400%
500%
600%
700%
800% 782%
25% 7% 10% 10%
Comparison of APRs
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
• This customer paid $270 for a single $100 loan.
Amount borrowed: $100
Payday Loan Fee: $ 30
Recycled Loans: 9
Total Fees Due: $270
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 one-time 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.
Payday Lenders McDonalds0
200
400
600
800
1000
1200
993
248
Payday Lenders vs. McDonalds
Num
ber
of
LA
Sto
refr
onts
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 / [email protected]
Ashley Herald / [email protected]
Emma Dixon / [email protected]