Transcript Payday Lending in Louisiana - United Way of Southeast Louisiana

Payday Lending in Louisiana
Jan Moller
[email protected]
225-819-7715
About the Louisiana Budget Project
An independent, nonpartisan organization that:
• Analyzes how state budget decisions impact low and
moderate-income families
•
Encourages citizens to be vocal about issues that impact
their lives
•
Provides timely research and analysis to drive policy
debates
Poverty is a daunting problem
•
Compared to other states, Louisiana has:
•
3rd highest rate of poverty (nearly 20 percent)
•
4th highest rate of child poverty (28 percent)
•
8th lowest median household income (slightly less
than $43,000 a year)
•
12th lowest health insurance coverage, which also
puts families at higher financial risk
Recent trends are troubling
State of working is uncertain
•
Wages have been
stagnant or falling for
years
•
Since 1979, median
wages have increased
1 percent, productivity
is up 35 percent
Stark disparities remain
•
Continuing racial
and gender
disparities in
education,
employment
opportunities and
wages add another
layer of challenges
No easy answers
•
Affordable child care and pre-K can improve
outcomes for children and remove barrier to
employment for parents, but current programs
do not meet current needs
•
Higher education is the key to a good-paying
job--yet state support has been slashed 66
percent since 2009, while tuition has spiked
Some programs are helping
•
•
•
Louisiana is one of about 25 states with its
own Earned Income Tax Credit (EITC) to boost
incomes of low-wage workers
Currently, Louisiana’s EITC puts $45 million a
year back into working families’ pockets
But it is the lowest in the nation--3.5 percent of
the federal credit compared to national
average of 16 percent
What is Payday Lending?
•
Payday loans are high
interest loans that vary
between $50 and $350.
Comparison of APRs
800%
782%
700%
600%
•
Full payment is due on the
individual’s next payday,
normally in two weeks.
500%
400%
300%
200%
•
A typical $100 payday loan
in Louisiana costs $30
(APR* = 782.14%).
100%
25%
7%
10%
10%
Auto Loan
Student
Loan
0%
Payday
Loans
Credit Card 30-Year
Mortgage
*APR is the adjusted value of a short-term interest rate if applied over a whole year.
What is Payday Lending
•
•
•
Since most payday users live paycheck to paycheck, they
cannot afford to both repay the entire loan and still have
enough money for necessities like groceries and rent.
The average person recycles his loans 9 times per year
Amount borrowed:
$100
Payday Loan Fee:
$ 30
Recycled Loans:
9
Total Fees Due:
$270
This customer paid $270 for a single $100 loan.
The Debt Trap
As payday users begin
recycling their debt…
…payday lenders become
more profitable.
Loans to onetime 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 Lending in Louisiana
•
Payday Lenders vs.
McDonalds
LA has a high concentration of
payday lenders
1200
•
•
There is one payday lender for every
4,600 citizens.
There are four times as many payday
lenders as McDonalds.
Number of LA Storefronts
1000
993
800
600
400
248
200
0
Payday Lenders
McDonalds
Who’s Likely to Take a Payday Loan
Effects of Payday Lending
•
In addition to falling into the debt trap, payday borrowers
are at a greater risk of –
•
•
•
•
Involuntary bank account loss due to overdraft
Higher rates of bankruptcy
Delinquency on other bills
Payday lending also impacts the community
•
•
•
Drains money from local economies
Leads to job loss
Increased rates of vandalism and foreclosures
Payday Loan Regulations
Military Lending Act (2007)
APR for consumer credit to service
members capped at 36% for
• traditional payday loans less than 90 days
• car title loans less than 180 days
According to the Department of Defense, “Predatory lending undermines
military readiness, harms the morale of troops and their families, and adds
to the costs of fielding an all volunteer fighting force.”
IF THE MILITARY NEEDS PROTECTION, DON’T YOU?
Payday Loan Regulations
Payday loan regulations vary by state. In the South:
• Six states allow payday lending (22 nationally),
• Two states regulate payday lending (8 nationally), and
• Three states ban payday lending (15 nationally)
Louisiana Regulations
Deferred Presentment and Small Loan Act
•
Limits payday loans to a maximum of $350.
•
Allows lenders to charge a maximum fee of 16.75 percent, up to $45
•
Act 668 (2010) increased documentation fee to $10 from $5
•
Refinance after paying 25 percent of the principal plus additional fees
•
If a consumer defaults on a loan, the lender can:
•
Charge 36 percent interest for the first year
•
Charge 18 percent interest for each following year, or a one-time
delinquency fee of $10 or 5 percent of the amount borrowed
Better Protections
•
•
•
•
•
•
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Cap payday loan APRs at 36 percent
Limit borrowers to six loans per year
Restrict lenders from over-concentrating in areas
Ban payday lenders from municipalities
Create a centralized computer database to track lending
Mandate annual reporting of payday lending
Require lenders to post consumer warnings
Alternatives to Payday Lending
•
Nonprofit cash assistance programs
•
Government assistance programs
•
Utility payment assistance programs
•
More affordable credit union or bank products (Caution!)
•
Begin savings plan (find non-profit matching program)
Alternatives to Payday Lending
•
Payment plan with creditors
•
Paycheck advance from employer
•
Seek help from consumer credit counselor
•
Deal with your debt
Recap of Today’s Workshop
•
We discussed four principles for building wealth:
• Spend less money than you earn
• Save as much as possible
• Build good credit
• Protect your wealth when you accumulate it
•
We discussed the dangers of payday loans and
alternatives to predatory lending
Payday Lending in Louisiana
David Gray / [email protected]
Ashley Herald / [email protected]
Emma Dixon / [email protected]