Louisiana Gov. John Bel Edwards has 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 a term of between 90 days and one year. Edwards, a Democrat, objected to the prices that the measure would have allowed lenders to charge.
Edwards said the bill “purports 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 bill’s author, I do not believe that this bill adequately protects the public from predatory lending practices,” Edwards wrote in a letter Tuesday explaining his veto.
The bill, authored by Republican state Sen. Rick Ward, would have limited loan finance charges to 36% per year on any unpaid balances. But it also allowed for a monthly maintenance fee of up to 13%, nonsufficient- funds charges and an underwriting fee of up to $50 for some larger loans.
All told, the charges could have totaled up to the same amount that a person originally borrowed, and consumer advocates said they would have resulted in annual interest rates of over 300%. Several states either have prohibited or are weighing banning consumer loans with annual interest rates above 36%.
Ward, whose office did not respond to a request for comment, has said the legislation helps give cash-strapped consumers another option for emergency credit. The bill passed with some bipartisan support in both chambers of the state’s legislature.
But Edwards wrote in his letter that he has “long been opposed to payday loan products which are designed to keep vulnerable individuals in debt.”
“While I would be willing to support, and sign into law, a bill that reforms payday loans in a manner that provides appropriate safeguards on interest rates and fees, this bill unfortunately does not meet that standard,” Edwards wrote.
INFiN, a Washington, D.C., trade group that represents payday lenders, said in a statement that it was “deeply disappointed” in Edwards’ veto and that the bill provided “critical consumer protections and guardrails.”
The governor’s action “neglects the kitchen-table needs of consumers who value access to a range of affordable credit options,” Ed D’Alessio, the group’s executive director, said in the statement.
Several consumer groups had asked Edwards to veto the bill, saying it risked adding another “longer and larger debt trap” on top of Louisiana’s current payday loan statutes, which allow for loans below $350 and due in 60 days or less.
The state’s payday laws already allow lenders to saddle customers with high interest rates, and the bill “would have made it worse,” said Jared Pone, policy counsel at the Center for Responsible Lending.
“We hope this veto turns the tide and encourages Louisiana’s leaders to take the next step and cap annual interest at 36% to prevent predatory lending, as eighteen other states and DC have done,” Pone said in a statement.