Payday Loan Writer
A new type of small loan in Louisiana that would use autos as collateral and charge interest rates of 25 percent per month has drawn heavyweight lobbyists and consumer advocates groups into a heated legislative debate.
The Times-Picayune reports that a group promoting conservative social values (which rarely takes positions on financial legislation), has come aboard the campaign against the proposal. The Louisiana Family Forum is steadfastly opposed to the measure.
Sponsored by Sen. Edwin Murray, a New Orleans Democrat, Senate Bill 743 would create a Louisiana Motor Vehicle Title Loan Act as a way for people with bad credit to obtain short-term cash — at risk of losing their car if they don't pay it back quickly. This is similar to how payday loan firms operate in that those with poor credit and little collateral can qualify.
"The interest rate is high, there's no doubt about it. But without this bill there's really no place for them to go," Murray said.
But consumer advocacy organizations aren't buying it.
"Louisiana should reject this bill. We think this is a really bad deal," Jean Ann Fox, Director of Consumer Protection at the Consumer Federation of America, said.
About half of the 50 U.S. allow some form of title loans, while only a handful have measures in place strictly to prohibit short-term cash loans.
At present, Louisiana law limits high interest rates, known as usury, by capping the average APR at 36. The Murray bill would create a new loan category that would fall outside those restrictions, as well as current motor vehicle loan policies.
It would create a regulatory framework in which an individual or business could get $350-3,000 in cash from a title loan company, to be paid back in 30 days with finance charges up to 25 percent for that period. A loan may be rolled over for 30-day periods up to 10 months, with borrowers supposed to pay off at least 10 percent of the principal with each extension.
As is the case with faxless payday loans, the overall APR on an annualized basis could be as high as 300 percent for delinquent accounts. Worse off, if the borrower fails to repay at all, the title loan company can repossess the vehicle.
Murray said the bill is needed to help people with poor credit or those who cannot get assistance from community banks, most of which stopped issuing short-term, small personal loans years ago.
The bill's sponsor also says the legislation is needed because fast payday loans can get a borrower only $350 in Louisiana, and consumers need more cash than that.
Community Loans of America, an Atlanta-based loan company operating in 28 states, is backing the bill and has hired a team of high-powered Louisiana lobbyists for support. Bob Reich, the company's president, said Louisiana has a large population of people who cannot get loans through banks.
"Title loans are basically (for) people who have lousy credit," he said.
Many title loan customers are small firms trying to jump-start business, Reich added. About one out of three title loan customers defaults on one, and about one out of 20 loans end with repossessed vehicles. Reich said that high levels of interest are needed for a company to be profitable.
Don't tell that to Gene Mills, executive director of the Louisiana Family Forum, who said clergy have contacted officials to oppose the bill.
The group has distributed to lawmakers biblical passages against the practice of usury, and is deeply concerned about the "very powerful and profound lobby" in favor of the bill. Mills said title loans are of great concern to the Forum because they are a "recipe for family financial instability."
The Louisiana Catholic Conference, the public policy face of the church, is in complete agreement.
"We think it's a terrible bill that preys on the poor," said Danny Loar, Executive Director.
The group is asking its social service network to make calls to lawmakers opposing the bill. Meanwhile. Ira Rheingold, Executive Director of the National Association of Consumer Advocates, said that title loans are a form of predatory lending.
She cited military payday loans as having a negative effect on base communities around the country, and a Consumer Federation report on the title and payday advance lending business says the loans "trap borrowers in a cycle of debt."
"In no instance should state legislatures permit lenders to charge rates that are higher than otherwise applicable usury laws," the report says.
Other states with title loans have a variety of limits, and Murray's bill is similar to the law in Mississippi. Florida caps the annual interest at 30 percent, while Illinois has no cap but allows only two refinancing periods. Georgia and Minnesota let pawn brokers offer the loans.