Payday lending in louisiana
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Payday Lending in Louisiana. Statewide Issues Conference February 15 th , 2014. WHO? HOW? WHAT?. Who Uses a Pay Day Loan?. Families with children. Earning $15,000 -- $40,000 per year Disproportionately African-American or Latino Poor Credit History

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Payday Lending in Louisiana

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Payday lending in louisiana

Payday Lending in Louisiana

Statewide Issues Conference

February 15th, 2014


Payday lending in louisiana

WHO?

HOW?

WHAT?


Who uses a pay day loan

Who Uses a Pay Day Loan?


Payday lending in louisiana

Families with children

Earning

$15,000 -- $40,000

per year

Disproportionately African-American or Latino

Poor Credit History

Need extra cash for emergencies and basic living expenses

Social Security Recipients


Payday lending in louisiana

How many people take out pay day loans in Louisiana?


Payday loves louisiana

Payday loves Louisiana

23% of Louisiana households rely on predatory lending

6th highest in the nation

US Average: 18%

About 57,000 Louisiana households take out payday loans per year

Source: Louisiana Budget Project


Payday business model

Payday Business Model


Billions billions served

Billions & billions served

Payday Business Model

# of Payday Shops

# of McDonalds

12,800

20,600

230

936


Payday business model1

Loans to one-time users 2%

New loans made within a two week period

76%

Initial loans to repeat users 11%

New loans after 14-30 day pause 6%

New loans after 30 day pause 5%

Payday Business Model

= multiple repeat loans and the debt trap.

Most payday loans go to

“immediate repeat borrowers”


Payday business model2

Payday Business Model

= multiple repeat loans and the debt trap.

  • Most payday revenue comes from “more loans per customer”


Payday business model3

Payday Business Model

= multiple repeat loans and the debt trap.

“In any large, mature payday loan portfolio, loans to repeat borrowers generally constitute between 70 and 90 percent of the portfolio, and for some lenders, even more.”

– Community Financial Services of America

(leading payday industry trade association)

  • In the their own words …


Payday business model4

Payday Business Model

= multiple repeat loans and the debt trap.

  • In the their own words …

“The theory in the business is you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's where the profitability is."

– Dan Freeman, CEO of Cash America


Debt cycle

Debt Cycle


Interest rates annual percentage rate apr

Interest RatesAnnual Percentage Rate (APR)

AverageUp to

30-year mortgage

Student Loan

Auto Loan

Sub-prime mortgage

Credit Cards

PAYDAY LOANS

5%

8%

2%

8%

12%

23%

8%

15%

15%

36%

150%

782%

Source: Louisiana Budget Project


How does this work

How does this work?

?

?

?

?

?

?


How payday loans carry triple digit apr s

How Payday loans carry triple digit APR’s

Payday Loan Amount $100

+ Interest ____+ 16.75%________

Amount owed = $116.75

____16.75 % X 26 Two-week periods

Two-week periods 1 year

= 436% APR

Plus fees of $10 PER LOAN brings APR to 696%!


Payday lending in louisiana

Source: Louisiana Budget Project


Payday lending in louisiana

Payday & Bankruptcy

People who take out a payday loan are

2 X

as likely to file for bankruptcy as people REJECTED for payday loan

20%of people in BR who file for bankruptcy do so, in part, because of payday loans

Payday borrowers are4 X

as likely to have filed for bankruptcy in last 5 years

Source: Louisiana Budget Project


Payday lending in louisiana

Payday hurts oureconomy

Money taken in fees and interest is money lost to Louisiana families and state economy

Amount in payday fees and interest extracted from Louisiana families PER YEAR (2011 figures)

$196,394,987

Source: Insight Center for Economic Development, “The Net Economic Impact of Payday Lending in the U.S.”, 2013


Payday lending in louisiana

Payday hurts oureconomy

Net jobs lost EACH YEAR because of economic impact of payday lending

671 jobs lost

(per year)

Source: Insight Center for Economic Development, “The Net Economic Impact of Payday Lending in the U.S.”, 2013


Where are payday loan shops in my city

Where are Payday Loan shops in my city?


Alexandria

Alexandria

# of payday lenders

29

Source: Louisiana Budget Project


Shreveport bossier city

Shreveport / Bossier City

# of payday lenders

78

Source: Louisiana Budget Project


New orleans

New Orleans

# of payday lenders

45

Source: Louisiana Budget Project


Monroe

Monroe

# of payday lenders

30


Lake charles

Lake Charles

# of payday lenders

30


Lafayette

Lafayette

# of payday lenders

39

Source: Louisiana Budget Project


Baton rouge

Baton Rouge

# of payday lenders

85

(State Capitol of Payday)

Source: Louisiana Budget Project


How did this happen

How did this happen?

  • Louisiana has “usury laws”, preventing loans with interest rates higher than 12%.

  • Louisiana legislature passed a law in 1990s EXEMPTING payday lenders from usury laws (“Louisiana Deferred Presentment and Small Loan Act”)

  • Legislature passed a law in 2010 allowing INCREASED FEES for payday loans.

(Who do you think they’re hearing from?)


What are other states doing

What are other states doing?

GEORGIA

Regulates payday lending through legislative action: cap at 16% APR interest.

  • The regulation decreased the number of individuals whose bank accounts were involuntarily closed due to repeated overdrafts by 11-16 percent

    ARIZONA

    In 2010, passed a cap of 36% APR, which specifically applies to payday loans.


What are other states doing1

What are other states doing?

ARKANSAS

State Supreme Court ruled that Payday Lending violates state usury laws

  • Last payday lending shop left the state in 2009.

    NORTH CAROLINA

    Regulated payday lenders in 2006 through legislative action.

  • Families saved almost $100 million/year

  • Former borrowers reported a “positive effect” on their personal finances


What are other states doing2

What are other states doing?

TEXAS

Taking a city-by-city approach

  • Dallas, Austin, San Antonio, and El Paso regulate where payday lenders operate, how they issue loans and what they charge in interest and fees.

    WASHINGTON STATE

  • Capped the total number of payday loans that can be lent to any individual from any company at 8 per year.

  • Number of annual payday loan transactions fell from 3.2 million to 856,000.


Military lending act 2007

“Military Lending Act” (2007)

Prohibits payday lenders from charging APR’s above 36 percent to active military personnel and their dependents.

  • The Pentagon found that military personnel collectively paid over $80 million of their salaries toward fees each year.

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


There are alternatives to payday

There ARE alternatives to Payday!

Examples:

Louisiana Federal Credit Union offers affordable, short-term loan product:

  • $300 loan, with max of 15% APR.

    ASI Credit Union offers “Stretch Loan” of between

  • $200 to $500 loan, with 12% APR.

MORE PEOPLE use alternatives in states that regulate Payday Lending


House meetings share a story about how debt has affected you or someone you know

HOUSE MEETINGSShare a story about how debt has affected you or someone you know?


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