Audit raises questions about payday lending

BATON ROUGE, La. (AP) — A legislative audit says state regulators let payday lenders slide on more than 8,000 "major violations," a lapse that had at least one lawmaker seeking a joint legislative investigation.
According to an audit by Louisiana Legislative Auditor Daryl Purpera, the state Office of Financial Institutions failed to assess penalties against payday lenders found to have violated state law between Jan. 1, 2010, and June 30, 2013.
Payday loans are for small amounts over a short term. The average is a 30-day loan for $300 plus fees. The auditor found 965 payday stores, mostly in low-income neighborhoods across the state, issued more than 3.1 million loans and collected $145.7 million in fees during 2013.
The Advocate reports (http://bit.ly/1p4dBRm) Rep. Ted James II, D-Baton Rouge, sent a letter Monday asking House Speaker Chuck Kleckley and Rep. Erich Ponti, chair of the House Commerce Committee, to call a special hearing on the issue.
"You have all these 8,000 violations and you haven't assessed a single penalty; that's borderline fraud to me," said James, whose district has a number of companies offering the loans.
Critics say the loan practice promotes borrowers to fall into "a cycle of debt," from which they find it difficult to recover. Backers say the loans provide a source of ready cash to help consumers with short blips in their cash flow.
The audit found that 163 lenders committed 8,315 violations during the time period, including 8,082 that were considered "major," in that they involved overcharging borrowers. OFI did not follow up on 6,612 of the major violations that required a refund to the borrower.
State law gives OFI the authority to fine offending institutions up to $1,000 for each violation.
"By not assessing penalties, OFI is failing to hold lenders accountable for adhering to state law," the report stated. The auditor's report stated: "We found that OFI needs to strengthen its examination, follow-up, enforcement and complaint procedures to ensure it is effectively regulating payday lenders."
Office of Financial Institutions Commissioner John Ducrest wrote that his office has found that lenders generally comply with the law, and OFI's main objective has been to get overcharges refunded to borrowers. He said that major violations over 11 years have brought more than $250,000 in such refunds.
It said three locations accounted for nearly 5,000 of the 8,000 major violations cited in the audit.
Ducrest said about 1,400 of those were against an office that divided loans into multiple agreements to get higher fees or charges. It sent out 1,405 refunds totaling $67,170, he wrote.
Another 3,600 were against two offices which charged customers a $10 documentation fee rather than the $5 cited in their contract. "One of the lending locations issued 2,616 five-dollar refunds totaling $13,080. The other lending location issued 963 five-dollar refunds totaling $4,815," Ducrest wrote.
He said his office will consider whether it needs "more robust" penalties and enforcement, especially for lending offices with identical major violations in consecutive inspections.

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