Payday Lending in Louisiana Trapping Working Families in a Cycle of Debt

1. Payday Lending in Louisiana Trapping Working Families in a Cycle of Debt WWW.LABUDGET.ORG

2. McDonald’s vs. Payday Lending

3. Payday Lending is Big Business • At least 20,600 payday loan currently open across the United States • 941 active licensed lenders in Louisiana • 1 payday lender for every 4,800 people • Over 4.1 million transactions made in 2008

4. What is a Payday Loan? • A loan between $50 to $350 • Borrowers write a check for the amount of the loan plus finance charges • Loans generally last two weeks • No credit checks or collateral • Triple-digit APR amounts to predatory business practices • Customers caught in debt-trap

5. How the Debt-Trap Works

6. How the Debt-Trap Works

7. Who is the Typical Borrower? • Earn $15,000 to $40,000 annually • Young, have at least a high school education, have children, more likely to be divorced or separated • Disproportionately African-American or Hispanic • Poor credit history • Used for emergencies (35.9 percent) and basic living expenses including food, gas, medicine, utilities, or rent (21 percent)

8. Payday Loans Lead to Chronic Borrowing

9. Consequences of Predatory Lending • Long-term indebtedness • Becoming a chronic borrower • Loss of bank account • Bankruptcy

10. Payday Lenders vs. Mainstream Banks

11. Experiences in Other States • Seventeen states and the District of Columbia effectively ban triple-digit interest rates • Eleven other states use online databases on all payday loan transactions • Over 5.0 Shops per 10K HH • 2.0 to 4.9 Shops per 10K HH • 0.1 to 1.9 Shops per 10K HH • No Payday Shops

12. North Carolina • In 2006, stopped out-of-state lenders from making illegal loans • It took five years of advocacy • 154 members of NC Coalition for Responsible Lending • Families saved almost $100 million per year • Former borrowers report a “positive effect” on personal finances

13. In 2009, the last payday lender closed shop in Arkansas after a six year advocacy effort • Arkansans Against Abusive Payday Lending made up of 37 organizations • Arkansas Supreme Court ruled that the industry violated usury limit in the State Constitution • For more information, visit: www.stoppaydaypredators.org

14. Payday Lending and the Military • Congress banned payday lending to military personnel and their dependents • “[P]redatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force.”

15. Offers anti-predatory loan programs • Stretch Plan Loan - a $100 14-day at ASI would pay exactly $1.06 in interest – this contrasts with $39.17 the same borrower could expect to pay in interest to a predatory lender for the exact same loan.

16. Louisiana Regulations • Louisiana Deferred Presentment and Small Loan Act • Maximum loans of $350 • Fees no greater than 16.75%, up to $45 • Documentation fee of $10 • If a customer defaults, lenders may charge 36% interest for one year and 18 percent thereafter, or a one time delinquency fee • Prohibits rollovers, but allows refinances • No limit on number of loans

17. Louisiana Legislation • 2006: HB 341 filed to prohibit payday lending. DEFEATED • 2009: HCR 137 educates Louisiana citizens about the dangers of payday lending. PASSED • Legislature: payday loans are “prevalent among persons that are economically disadvantaged” and lead to “more economic hardship.”

18. Recommendations • Cap finance charges for payday lenders at the equivalent of 36 APR • Limit loans to those already indebted to any payday lender for more than three months in the past year • Improve tracking and reporting through a database system

19. WWW.LABUDGET.ORG