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?’” Jones tells Business Report in a feature in the current issue. At the time, it sounded too good to be true. Jones 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.”
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.
To better protect consumers such as Jones, the federal Consumer Financial Protection Bureau proposed a new rule in June that 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.
The protections would cover payday loans, auto title loans, deposit advance products and certain high-cost installment and open-end loans. The sweeping 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 preemptive 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. 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.”
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