Louisiana legislators on Wednesday advanced a proposal to limit the number of payday loans a borrower can take out each year, despite arguments that it will force storefront lenders to shut down.
The state's Senate Finance Committee approved the proposal by Sen. Ben Nevers to put a cap of 10 payday loans per year per borrower. Payday lenders would be required to record transactions in a database to ensure the cap. The bill now moves to the full Louisiana Senate for consideration.
While supporters of the measure say Nevers' bill is progress, they had originally sought a cap on the fees that could be charged on the short-term loans. Legislation in the state aimed at making payday loans cheaper for borrowers failed in a Louisiana House committee earlier this month. House Bill 239 sought to cap the annual fees charged for payday loans at 36% interest as the annual percentage rate sometimes can top 400%.
Louisiana House Commerce Committee members, fearing the legislation would result in payday lenders closing down, rejected the bill by a 10-8 vote.
Organizations seeking to toughen rules on payday loans pointed to a report by the Louisiana Office of Financial Institutions showing state residents paid $146 million in fees and interest on payday loans last year.
On the national level, the Consumer Financial Protection Bureau is finalizing the first nationwide rules for payday lending. The regulations will apply to an estimated 20,000 payday stores and many more online.
A report released this week by the Pew Charitable Trusts revealed Idaho, South Dakota and Wisconsin have the nations highest interest rates for payday loans. The report found rates in those states are high mainly because theyre among only seven states that impose no legal limits on payday loans.
The study urges states to limit payments to "an affordable percentage of a borrowers periodic income," saying monthly payments above 5% of gross monthly income are unaffordable. Payday loans on average take 36% of a persons pre-tax paycheck, according to Nick Bourke, project director at Pew.