Payday Loan

Predatory Payday Loans, a Dramatic Social Ill — What Will Congress and Louisiana Do?

Written by Richard Fossey

Pope Francis once called usury, the practice of lending money at unreasonably high interest rates, a “dramatic social ill.” The supreme pontiff went on to say, “when a family has nothing to eat because it has to make payments to usurers, this is not Christian, it is not human.” Although impious and inhumane, predatory lenders are allowed to flourish behind the walls of Louisiana’s varied storefront payday lenders. With a bill to increase high-cost loans before the Louisiana State House and Congress possibly voting soon on resolutions to repeal the Consumer Financial Protection Bureau’s “payday loan rule,” lawmakers could give payday predators their blessing.

Predatory lending and usury date back to pre-Diluvian times, with storefront payday lending representing just the latest iteration. While much has changed over the centuries, the concept remains the same–provide high-cost loans that exploit people’s financial hardships.

But make no mistake, payday lenders’ “short-term fix” is a long-term trap.

At triple-digit interest rates, payday lenders take a big bite with on each individual loan.  But they don’t stop there. These predatory lenders count on needy borrowers’ inability to repay their loan and meet the next month’s expenses, forcing people to reborrow or “roll over” their loan–for a sizeable fee. A study conducted by the Consumer Bureau, the consumer watchdog created after the 2008 financial crisis, found 80 percent of payday loan borrowers either roll over their loan or re-borrow within 14 days. As many as 15 percent reborrow ten or more times, falling into a debt trap that could take years to escape.

According to the Louisiana Budget Project, a typical Louisiana borrower will need to take 9 payday loans each year to pay off their original debt, resulting in $270 in fees for a one-time $100 loan.

Louisianans living in and near poverty are ripe for exploitation by predatory lenders. The more desperate the customer, the steeper the profits. It is payday predators’ concerted targeting of the most vulnerable among us that led the Consumer Bureau to issue it’s “payday loan rule.” The rule, among other requirements, would force lenders issuing more than six loans in a year, or more than 90 days a year, to assess the borrower’s ability to repay their loan, much like credit card companies and responsible lenders must do.

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With the annual percentage rate for a payday loan in Louisiana up to 780 percent, compared to an annual percentage rate of 24 percent for major credit cards, applying some of the same consumer protections as credit cards to payday loans is a no-brainer.

As Dr. Alex Mikulich, a New Orleans-based Catholic theologian, explained: “This rule will force predatory lenders to shift their business model away from churning loans out one after another and ease the stranglehold payday lenders have on Louisiana’s working poor families.”

But payday lenders are digging deep into their pockets to shield their predatory business practices from commonsense reform. The sponsors of the resolution to kill the Consumer Bureau’s rule in the House (H.J. Res.122) have taken $471,725 from the payday loan industry, while the sponsor of the Senate resolution (S.J. Res. 56) has received $35,800.

No amount of money can buy a clean conscience. As the Catechism of the Catholic Church teaches: “those whose usurious and avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them.”

Lawmakers in Washington and Baton Rouge must reject efforts to pull back consumer protections from payday loans–efforts tantamount to throwing vulnerable Louisianans to the wolves.

About the author

Richard Fossey

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.

1 Comment

  • Our entire financial industry is predatory. Our system is designed to exploit our ignorance. Our belief systems are built through the use of sophisticated yet simple propaganda techniques. These techniques work.

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