The new law would allow 100% interest on payday loans; Louisiana governor vetoes what critics call a trap
Louisiana Democratic Governor John Bel Edwards has vetoed new legislation that would have inflicted undue hardship on state residents who take advantage of payday loans.
Senate Bill 381 was sponsored by Republican Senator Rick Ward, who said it would help those who use the loans deal with unexpected expenses. The legislation would have offered installment loans of up to $1,500. However, with fees and interest, the amount owed or principal could increase by 100%, depending on the lawyer.
The report notes that with “maintenance fees” of up to 13% of the original loan amount, a $1,500 loan could have fees equivalent to $195 per month.
Edwards agreed with critics of the bill who complained that predatory lending would have further trapped low-income people in cycles of debt. In his veto note, he references Ward, writing, “despite the best efforts of the sponsor of the bill, I do not believe that this bill adequately protects the public against predatory lending practices.”
“I have long been opposed to payday loan products,” Edwards added, “that are designed to keep vulnerable people in debt, often paying exponentially higher interest rates than would otherwise be available in commercial banks”.
The governor said he “would be willing to support and enact legislation that reforms payday loans in a way that provides appropriate safeguards on interest rates and fees.”
the lawyer noted that Senate Bill 381 would not have replaced or reformed the existing system. Instead, he would have created a new product, with monthly payments over three to 12 months.
According to a study by The Pew Trust, “Black people make up about 13% of the total US population, but they make up 23% of all in-store payday loans.”
Pew finds that many payday lenders, both in storefronts and online, rely on returning customers, noting that “regular customers are also desirable because they do not repay loans at lower rates than new customers. . Industry analysts estimate that even charging a fee of $25 for every $100 borrowed per pay period, an online lender would need the customer to borrow at least three times to make a profit.
The University of North Georgia notes that many families who use payday loans are unbanked and underbanked and are disproportionately black or Hispanic, recent immigrants, and/or undereducated. The university has a Student Money Management Center, which helps students establish emergency savings funds and financial plans.
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