Dana Jones of Baton Rouge says she’ll never take another payday loan again after she spent a decade working her way out of a debt spiral that started with a single $300 loan. Photography by Brian Baiamonte
In 1992, Dana Jones’ mother suffered a debilitating nervous breakdown that prevented her from working. To make matters worse, her mother didn’t have health insurance, so the medical bills quickly began to pile up.
For a while, Jones and her brother were able to manage the escalating costs, but eventually they began looking for other options.
“I was talking to my cousin one day and she says, ‘Dana, why don’t you just go get a payday loan?’” she recalls. At the time, it sounded too good to be true. She couldn’t believe that someone would loan her $300 for only $45 in interest.
“It was really simple—you bring them a check stub, a voided check for $345 and a utility bill or phone bill, and they give you the cash,” she says.
But Jones’ decision to take that single payday loan began a cycle of debt that lasted a decade, during which she juggled multiple loans, using money from one loan to pay another.
“It just ballooned,” she says. “At its worst, I had outstanding loans with 12 different payday loan agencies.”
Over several years, she managed to crawl out from under the mountain of debt by paying off some of them and defaulting on others. Finally, by 2003, she had put the nightmare behind her. Jones estimates she paid payday lenders thousands of dollars in interest over her decade in debt.
As unfortunate as Jones’ story may be, it’s not unique. According to a 2014 Louisiana Legislative Auditor’s report, approximately 318,000 Louisianans took out a payday loan in 2013. The 329 payday lending companies operating in the state—which have 965 locations total (East Baton Rouge Parish being home the most of any parish, with 98)—collected $145.7 million in fees on the 3.1 million loans issued during the year.
The audit, which was conducted to determine whether the Office of Financial Institutions was effectively regulating payday lenders, concluded that “OFI needs to strengthen its examination, follow-up, enforcement, and complaint procedures” to ensure effective regulation. “We also found that OFI management does not provide adequate oversight of its examinations of payday lenders,” the report reads. “As a result, OFI cannot ensure that payday lenders are adhering to state laws and that borrowers are protected from improper payday lending practices.”
To better protect consumers such as Jones, the federal Consumer Financial Protection Bureau proposed a new rule in June that would end what it calls “payday debt traps.” The proposed rule would require payday lenders to determine whether or not a borrower can actually afford to pay the full amount of each payment when it’s due while still meeting basic living expenses and financial obligations.
While lenders would still be permitted to offer longer-term options, it would only be allowed if they pose less risk by adhering to certain restrictions. The protections would cover payday loans, auto title loans, deposit advance products and certain high-cost installment and open-end loans. The CFPB is collecting public comments on the proposal until Oct. 7, after which it will issue the final rule.
The sweeping payday loan proposal is intended to rein in small-dollar, short-term loans, for which annualized interest rates average about 300% and can climb as high as 500%. Until now, the payday loan industry has been regulated only by the states.
As a pre-emptive measure to the CFPB rule, Louisiana’s payday loan industry pushed for new legislation during the spring session under House Bill 793 by Rep. Thomas Carmody, R-Shreveport, to allow it to offer longer-term installment loans, thereby enabling lenders to continue to operate. However, the bill did not advance beyond the Commerce Committee after being introduced in March.
Danny Ford, a lobbyist with the Louisiana Payday Loan Association, says his group, which represents the smaller “mom-and-pop” payday lenders, did not take an official stance on the bill. “It was pushed by the larger (payday loan) chains,” he says. “They were thinking the CFPB was going to put down rules any minute so we needed to have something in place to continue to loan. We just thought it was a little premature from our end. This is the third or fourth time [the CFPB] said the rule is coming out.”
Still, Ford acknowledges that a new CFPB rule will eventually become reality, which will undoubtedly be tough on his industry. “This industry exists because folks with bad credit need access to capital,” he says. “The misconception is that we’re wanting to take advantage of people. Nothing could be further from the truth. This industry began because folks saw people hauling their TVs and things back and forth to the pawn shop. Someone came up with the idea that if you need money, we’ll sit on a check for 30 to 45 days. If you don’t pay me back, I’m going to deposit the check.”
Ford says the payday loan industry has been more proactive about trying to help consumers in recent years. For example, he says, the industry supported legislation enacted in 2015 that forced lenders to offer extended payment plans to borrowers who were unable to repay their loans.
“If they don’t think they can pay it off, they can request an extended payment plan,” he says. “We immediately stop accruing interest and allow them to pay it off over a year.”
His group is also arguing for raising the cap on loan amounts to help borrowers avoid having to apply for multiple loans. “If someone needs access to capital, say they need $500, they’re going to have to take out two loans,” he says. “And then you’re in a situation where you have two loans, with two different docking fees, two different application fees, etc. If you let us go up to $500 that alleviates a lot of the problem there.”
Troy McCullen, president of the Louisiana Cash Advance Association, says that many of CFPB’s assertions are erroneous.
“There are kernels of truth in many things, but most of what they say about us can be refuted by fact,” McCullen says. “This has caused delays, and they are stumped on how to get their federal hands around an ‘unregulated industry with high complaints,’ when in actuality our complaints are virtually nonexistent, and we are highly regulated by the states.”
AT THE STATE LEVEL
Jan Moller, director of the Louisiana Budget Project, was part of a 2014 coalition that supported bills in the Louisiana Legislature to cap payday annual loan interest rates at 36%. The bills didn’t pass, and Moller says LBP has no current plans to introduce new legislation as it waits to measure the impact of the pending CFPB rule.
“The industry hired a lot of lobbyists to fight this, and the bills didn’t go anywhere,” Moller recalls of the 2014 session. “One of them got out of the Senate, but instead of having the interest rate cap it became a cap on the number of loans per year a person could take out. The industry was against that, too.”
According to an LBP report, the annual percentage rate for a payday loan in Louisiana is 780%, compared to an annual percentage rate of 24% for major credit cards. Along with capping the annual loan interest rate, as North Carolina does, LBP says Louisiana should prohibit borrowers from taking more than eight loans in a 12-month period (as Washington state does), and require minimum repayment terms of six months (as Colorado does).
Moller says the payday lenders’ business model is based upon customers remaining trapped in endless cycles of debt.
“The legislative audit showed what we had been saying—that these short-term instruments with extremely high APRs create long-term cycles of debt for families that can least afford it,” he says. “If you have a product that charges interest rates in the triple digits, it’s a fundamentally broken product.”
As a former payday loan customer, Jones can’t imagine a scenario where she would take out another payday loan.
“There’s nothing in this life that could happen to me to make me get that type of loan again,” she adds. “I vowed that when I got out of debt, while I might have to borrow money again, I would not borrow money from a payday loan company.”