When Dana Jones first heard about payday loans, she was struggling to pay for prescriptions for her mother, who had been struck suddenly with mental illness. She borrowed a small amount that first time—just $50, she remembers—and paid it back when she got her next paycheck. It seemed simple enough, so she began drawing regularly on short-term credit. “I really thought it was a loan that worked like any other loan I had gotten from finance companies,” said Jones, who lives in Baton Rouge, Louisiana. “I just didn’t know.”
What Jones didn’t know is that the triple-digit interest rates charged by many short-term lenders would soon push her into a spiral of debt. “You have one loan, and you end up going to another payday lending company to pay for it, and then you have another one,” she explained. At the low point of a debt trap that lasted for more than a decade, Jones owed money to twelve different creditors. She had no trouble finding new lenders; there are more than twenty on just one street in Baton Rouge, sometimes several on the same block. “I was just drowning in this, and I didn’t see my way out,” Jones remembered.
Jones was almost lucky compared to Thelma Fleming, another Baton Rouge resident who pawned her jewelry, had her checking account shut down and lost her car trying to keep up with a string of loans she took in order to make ends meet after she lost one of her two jobs. “For me, it was devastating,” she said. “It got the best of me to the point where I considered suicide.”
Some 200,000 households in Louisiana borrow from short-term lenders every year, as do roughly 12 million people in the United States. There are about as many payday loan stores in the United States as there are McDonald’s and Starbucks. Typically under $500, the loans are intended to provide small amounts of cash to tide borrowers over until their next paycheck. With interest rates as high as 700 percent, many borrowers end up under a mountain of unpayable debt instead. In Baton Rouge, 20 percent of bankruptcy cases involve payday loans.
“It’s a huge issue, and not one people wanted to talk about,” said Broderick Bagert, an organizer with Together Louisiana, a coalition of religious and civic groups that launched a campaign for stricter rules for payday lenders during the last legislative session. Their push “scared the hell out of the industry,” Bagert said wryly, noting that the number of lobbyists working on its behalf jumped from a handful at the beginning of the legislative session to more than fifty by its end. In late April, the state Senate rejected the bill.
“There is no doubt in anybody’s mind about where the people were, but the lobby this time around had the resources to buy the vote,” said Bagert.
Louisiana has become one of the fiercest battlegrounds in a protracted fight between consumer advocates and the payday lending industry, which exploded during the early 2000s after decades of deregulation and an influx of easy money from Wall Street. The difficulty of establishing state-level protections for borrowers is not unique to Louisiana, and consumer advocates have for years called on the federal government to cap astronomical interest rates.