In Louisiana, it?s more convenient to get a payday loan than a Big Mac. That?s because there are four times as many payday loan outlets as McDonald?s restaurants. while a steady diet of Big Macs will pile the pounds on, a steady diet of payday loans can put you in bankruptcy.
AP Photo/Matt RourkeIn this Dec. 1, 2009, photo, job seekers wait in line to speak to potential employers at a job fair in Philadelphia.
Payday lenders ? so called because they loan you money against your next paycheck ? provide loans of $50 to $350 to financially stressed people who sometimes can?t afford their rent, groceries or utilities until their next payday arrives. Borrowers write a check for the amount of the loan, plus interest and fees, and are able to walk away with cash in hand.
But there?s a catch ? and it?s a big one. the interest rates on payday loans are sky-high, approaching an annual percentage rate ? or APR ? of 800. at one lender, for example, the total payment for borrowing $50 for two weeks is $65, an APR of 782. A $300 loan costs $350, an APR of 434. not surprisingly, once on this high-priced debt treadmill, borrowers find it hard to get off. the average payday borrower in the United States takes out nine loans per year.
Payday lenders prey on the working poor. their siren song of ?easy money? lures those living paycheck-to-paycheck and who face a financial emergency. They offer easy access to quick cash, usually a couple hundred dollars or so, with only ID, proof of residency, a checking account and a paycheck stub. Lenders? trademarked slogans and store names say it all ? ?Get Money Now,? ?E-Z Quick Cash,? ?Show me the Money? and ?Broke ?Til Payday.?
Louisiana has one of the country?s highest concentrations of payday lenders. That makes sense. Louisiana has the country?s second-highest poverty rate. What doesn?t make sense is the lack of oversight or regulation, which allows payday lenders to take advantage of people in need.
The business arose as banks across the country left the inner cities, leaving in their wake a growing predatory lending industry of payday lenders, check cashers and pawnshops to supply the continuing demand for cash and credit. With more than 900 stores ? compared to 228 McDonald?s restaurants ? payday lenders are now prevalent in every major Louisiana city.
While the need for credit by the working poor is real, payday lending is not an appropriate response. Rather than providing a solution to the financial hardship borrowers face, payday lenders trap them in a spiraling cycle of debt. one study found that successful, first-time payday loan applicants were twice as likely to file for bankruptcy in the following 24 months as rejected applicants.
In Louisiana, the industry is under the jurisdiction of the Office of Financial Institutions, the agency responsible for regulating banks as well as other alternative financial services, such as check cashers and pawnbrokers. But OFI does not require payday lenders to report even basic information, such as how many loans customers take out and how often and their average indebtedness. it also fails to publicize the number and nature of complaints filed against lenders. A 2009 study found that ?Louisiana?s stated commitment to sustaining the payday lending industry signifies that consumer protection is a lower priority than industry protection.?
Louisiana needs to put an end to this legalized usury. Seventeen states ? including Arkansas, Georgia and North Carolina ? have effectively banned payday lending through APR caps, enforcement of usury laws and stricter regulation. so has the military. Based on Pentagon findings that ?predatory lending undermines military readiness [and] harms the morale of troops and their families,? Congress made payday lending to service members and their dependents uneconomical by capping the APR at 36 percent.
Life is hard enough for people trying to work their way out of poverty. Louisiana should make it harder for the predators that take advantage of their plight.
Edward Ashworth is director of the Louisiana Budget Project.
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