09 May 2018

Committee action, May 9: SB 365

SB 365 by Sen. Rick Ward would impose regulations on the short-term loan industry in response to federal regulations changing in Aug., 2019 that otherwise might wipe out the industry. He told the House Commerce Committee it imposed reasonable restrictions on the industry. He offered some clarifying amendments that set the following rules: 3-12 months, $500-875 in amount, 9 percent simple interest rate monthly, grace periods for payments (10 days) and default (61 days), and 30 days between loans, among other things. Even so, the bill would cause significant shrinkage of the industry.

Rep. Rodney Lyons asked whether the bill would affect anybody outside the industry, and was told it would not. Rep. Edmond Jordan said the bill’s terms still weren’t good enough, calling it “predatory.” Ward said, without the bill’s terms, the product hardly would exist, and demonstrated as such by noting lower-priced products don’t currently exist. He also said the rule could be repealed by Congress, but was told that seemed unrealistic and ignored business realities. Jordan also went over what seemed a checklist of opponents’ objections and received answers which contradicted the assertions.

Rep. Patrick Jefferson asked how it would it impact current consumers. Ward said it provided help for those without any other recourse, and about 20,000 currently took advantage of that. About a quarter defaulted, but that was the nature of lending to high-risk consumers. Without the bill, the number served would plummet.

Rep. Kenny Cox asked what would happen to the industry without the legislation. He was told that even the federal government agency which had promulgated the rules unlikely to be revoked in time admitted it would put most outlets out of business. He also said a number of people would be cut out under the new law because of the minimum, but was told federal regulations would wipe out those products anyway because of the complexities involved, yet would not disappear in Louisiana until the deadline.

Opponents said credit unions offered such products and claimed they could service the less creditworthy customer, alleging it was matter of cultivating financial literacy. But Rep. Chad Brown pointed out that for credit unions to do this, members would have to pay a fee, and wondered by if credit unions offered as good a deal, why they didn’t already have this business; their representatives said they didn’t know but argued consumer awareness solved for that. He also wondered if credit unions opposed this bill because they wanted to eliminate competition, which they denied. Brown also pointed out they would not lend to some people that payday lenders would, but the representatives said that would be irresponsible lending and they would protect consumers. Brown noted the mixed and contradictory messages, which the representatives denied sending.

Lyons echoed some of Brown’s concerns, saying that individuals should have more choice in these kinds of loans and that credit unions do not reach some of the clientele served by payday lenders. Other opponents from various interest groups called the bill predatory and said the federal regulations could change.

One called it “compassionate” to oppose the bill, but Rep. Kevin Pearson pointed out that it lacked compassion to deny poor people access to money needed when they had the ability to pay it back. Lyons also noted that supposedly comparable products some opponents said serviced the industry currently would be unaffected by the law, and wondered why more choice offered under the bill would be bad.

Ward closed by reiterating some opponents based that on ideology, even if mistaken, and other of it from some in the industry, which he pointed out represented a fraction of the volume and the bill didn’t even address their current product. He also lamented what he called misinformation over reporting about the issue.

The bill failed 7-9, with voting fractured across party lines.

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