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 aimed to establish a new type of consumer loan of up to $1,500 and terms ranging from 90 days to a year. Edwards, a Democrat, protested the rates the measure would have allowed lenders.
Edwards said the bill “claims to create additional credit opportunities” for people with lower credit ratings, but allows “exponentially higher” interest rates than people could get at a bank.
“Despite the best efforts of the author of the bill, I do not believe that this bill will adequately protect the public from predatory lending practices,” Edwards wrote in a Letter Tuesday declared his veto.
The bill, authored by Republican Senator Rick Ward, would limit borrowing costs to 36% per year on unpaid balances. But it also allowed a monthly maintenance fee of up to 13%, insufficient funds fees, and an underwriting fee of up to $50 for some larger loans.
All told, the fees could have been the same amount a person originally borrowed, and consumer advocates said they resulted in annual interest rates in excess of 300%. Several states have either banned or weigh themselves Ban on consumer credit with annual interest rates above 36%.
Ward, whose office did not respond to a request for comment, has said The legislation helps give defaulting consumers another option for emergency loans. The bill passed with some bipartisan support in both chambers of the state legislature.
But Edwards wrote in his letter that he “has long been opposed to payday loan products designed to keep vulnerable individuals in debt.”
“While I would be willing to support legislation and sign legislation reforming payday loans so that interest rates and fees are adequately protected, unfortunately this legislation does not meet that standard,” Edwards wrote.
INFiN, a Washington, DC trade group that represents payday lenders, said in a statement that it was “deeply disappointed” by Edward’s veto and that the bill would provide “critical consumer protections and guard rails.”
The governor’s action “ignores 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 asked Edwards to veto the bill because they risked adding another “longer and bigger debt pitfall” on top of current Louisiana payday loan laws, which allow loans under $350 with a maturity of 60 days or more allow less.
The state‘s payday laws already allow lenders to charge customers high interest rates, and the bill “would have made it 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 rates to 36% to prevent predatory lending, as eighteen other states and DC have done,” Pone said in a statement.