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Payday Lending: 3 Million Louisiana Loans

  You live on a limited income, paycheck to paycheck. Now your next paycheck is in jeopardy, because your car won’t start. What to do?

There’s that payday lending store around the corner, so you go take out a loan and buy a new battery for your car. You give the lender a post-dated check for the amount of the loan, plus interest and fees. The lender cashes your check after you get paid. Done deal, right?

Not always, according to David Gray with the Louisiana Budget Project.

“That leaves insufficient funds for other necessities like groceries and rent,” Gray explains, and says that leads them into what advocates of payday lending reform refer to as “the debt trap.” “As a result, customers will oftentime take out a second payday loan to repay the first, and then a third to repay the second,” Gray adds.

That’s confirmed by a new report from the state Office of Financial Institutions. It says the average payday loan customer in Louisiana repeat borrows a dozen times in a year, and ends up paying over $800 in interest and fees on a $300 loan. The report, compiled in response to an act of the 2012 Legislature, also shows Louisiana residents took out 3,126,278 payday loans in 2013, and paid $145,665,345 in interest and fees. Of those fees, more than $2.5 million was assessed solely for bounced checks.

Several lawmakers have filed bills to cap payday loan interest—which currently averages 416% annually—at 36% A.P.R. A Senate version of the bill was amended in committee to remove the cap, and instead simply limit borrowers to ten loans per year. The full Senate is scheduled to debate S.B. 84, by Senator Ben Nevers (D-Bogalusa) today.

Senator Danny Martiny (R-Kenner) explains why he pushed to change that bill.

“Are you going to make that two-week, $350 loan for 4 dollars and ten cents?” Martiny asks, acknowledging there’s little profit in a 36% interest cap. “If you pass the bill, a lot of people are just going to get out of the business.”

While the new report on the economic impact of payday lending in Louisiana may or may not be brought up on the Senate floor this afternoon, it’s sure to be brought up in the House Commerce Committee. That committee is scheduled to hear a House version of the bill to cap payday loan interest at 9:00 this morning.