If a poor family needs a loan to get through to the next payday, or to cover a big unexpected bill for an accident or illness, shouldn’t there be loans available? And isn’t it condescending to say that the poor can’t make their own decisions about loan products?
That’s the party line on high interest loans. Louisiana gives lenders plenty of leeway to make money from those in need of small payday loans. Why not make this debt trap even more attractive with longer-term loans, like those persistently proposed in the Legislature by Senator Rick Ward, R-Port Allen?
Fortunately, Governor John Bel Edwards wisely decided to put an end to the expansion of predatory lending in Louisiana.
Edwards vetoed Senate Bill 381, passed by narrow majorities somewhat under the radar this session. The Ward bill would have capped finance charges at 100% of the original loan amount.
A ceiling. Lenders could have charged up to $1,500 in fees on a $1,500 loan, for a total repayment of $3,000.
The state’s current payday loan system allows lenders to offer a loan of up to $350, due on the borrower’s next payday. The maximum a payday lender can make per loan is $55.
Lenders who offer the new product created in SB381 would earn most of their money on monthly “maintenance fees” worth up to 13% of the original loan amount. For a loan of $1,500, these costs would amount to $195 per month.
It would have been Christmas in June for the predatory lending industry. And if you’ve ever watched “It’s a Wonderful Life” over the holidays, Ward was siding not with Jimmy Stewart but with the miserly Mr. Potter.
We commend the governor for stepping in. Before tackling the issue again, lawmakers should consider the harm this type of product can do to their constituents in working families.