Louisiana Governor John Bel Edwards vetoed a bill that would have allowed consumer lenders to offer short-term installment loans with triple-digit interest rates.
The bill sought to establish a new type of consumer loan of up to $1,500 and with terms of between 90 days and one year. Edwards, a Democrat, objected to the prices the measure would have allowed lenders to charge.
Edwards said the bill ‘aims to create additional loan opportunities’ for people with lower credit scores, but allows for ‘exponentially higher’ interest rates than people can get at a bank .
“Despite the best efforts of the sponsor of the bill, I do not believe this bill adequately protects the public from predatory lending practices,” Edwards wrote in a statement. letter Tuesday explaining his veto.
The bill, drafted by Republican Senator Rick Ward, would have capped loan financing fees at 36% per year on any outstanding balance. But it also allowed monthly maintenance fees of up to 13%, insufficient funds fees, and underwriting fees of up to $50 for some larger loans.
In total, the fees could have reached the same amount a person originally borrowed, and consumer advocates said they would have resulted in annual interest rates of more than 300%. Several states have banned or weigh Prohibition of consumer loans with annual interest rates above 36%.
Ward, whose office did not respond to a request for comment, said the legislation helps give cash-strapped consumers another option for emergency credit. The bill passed with some bipartisan support in both houses of the state legislature.
But Edwards wrote in his letter that he “has a long history of opposing payday loan products that are designed to keep vulnerable people in debt.”
“While I am willing to support and sign a bill that reforms payday loans in a way that provides appropriate safeguards on interest rates and fees, this bill unfortunately does not address that standard,” Edwards wrote.
INFiN, a Washington, D.C. trade group that represents payday lenders, said in a statement it was “deeply disappointed” with Edwards’ veto and that the bill provided “safeguards and guardrails essential for consumers.
The governor’s action “overlooks the kitchen table needs of consumers who value access to a range of affordable credit options,” Ed D’Alessio, the group’s chief executive, said in the statement.
Several consumer groups had called on Edwards to veto the bill, saying it risked adding another “longer and bigger debt trap” on top of the current payday loan laws of Louisiana, which allow loans under $350 and due in 60 days or less.
State wage laws already allow lenders to charge customers high interest rates, and the bill “would have made the situation worse,” said Jared Pone, policy adviser at the Center for Responsible Lending.
“We hope this veto will turn the tide and encourage Louisiana leaders to take the next step and cap annual interest at 36% to prevent predatory lending, as eighteen other states and DC,” Pone said in a statement.