Statewide Issues ConferenceFebruary 15th, 2014

Payday Lending in Louisiana

WHO?HOW?

WHAT?

Who Uses a Pay Day Loan?

Families with childrenEarning $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

How many people take out pay day loans in

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

Billions & billions served

# of Payday Shops

# of McDonalds

12,800 20,600

230 936

Payday Business Model

Payday Business Model

= multiple repeat loans and the debt trap.

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%

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.

“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

In the their own words …

Debt Cycle

Interest RatesAnnual Percentage Rate (APR)

Average Up to30-year mortgageStudent LoanAuto LoanSub-prime mortgageCredit CardsPAYDAY LOANS

5%

2%

12%

8%

15%

150%

8%

8%

23%

15%

36%

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 periodsTwo-week periods 1 year

= 436% APRPlus fees of $10 PER LOAN brings APR to 696%!

Source: Louisiana Budget Project

People who take out a payday loan are

2 Xas likely to file for bankruptcy as people REJECTED for

payday loan

Payday borrowers are 4 Xas likely to have filed for bankruptcy in last 5 years

Payday & Bankruptcy

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

Source: Louisiana Budget Project

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

state economy

Payday hurts our economy

$196,394,987

Amount in payday fees and interest extracted from Louisiana families

PER YEAR (2011 figures)

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

Payday hurts our economy

671 jobs lost(per year)

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

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?

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?

GEORGIARegulates 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

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

What are other states doing?

ARKANSASState 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?TEXASTaking 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.

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.”

“Military Lending Act” (2007)

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?