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Payday Lending in Louisiana Statewide Issues Conference February 15th, 2014
WHO? HOW? WHAT?
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 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
Billions & billions served Payday Business Model # of Payday Shops # of McDonalds 12,800 20,600 230 936
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 Model = multiple repeat loans and the debt trap. • Most payday revenue comes from “more loans per customer”
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 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
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 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 & 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 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 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
Alexandria # of payday lenders 29 Source: Louisiana Budget Project
Shreveport / Bossier City # of payday lenders 78 Source: Louisiana Budget Project
New Orleans # of payday lenders 45 Source: Louisiana Budget Project
Monroe # of payday lenders 30
Lake Charles # of payday lenders 30
Lafayette # of payday lenders 39 Source: Louisiana Budget Project
Baton Rouge # of payday lenders 85 (State Capitol of Payday) Source: Louisiana Budget Project
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? 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 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 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) 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! 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 MEETINGSShare a story about how debt has affected you or someone you know?