Compromise reached on payday lending

By Bobby Harrison/NEMS Daily Journal

JACKSON – House and Senate negotiators have reached a compromise on extending the law that allows payday lenders to operate in Mississippi.
The two chambers could take up the compromise proposal in the coming days.
House Banking Chairman George Flaggs, D-Vicksburg, said that under the compromise, payday lenders could charge $20 for each $100 on loans of up to $250.
For loans of $250 to the maximum of $500, they could charge $21.95 per $100 loan.
Borrowers would have 14, 21 or 30 days to pay back loans of $250 and less and 28 to 31 days to pay back loans of more than $250.
“I think this will end up being model legislation,” Flaggs said. “I don’t think the advocacy groups will be happy, but what they wanted is to put the payday lenders out of business.”
Flaggs said he could not agree to close down an industry that employs more than 3,000 Mississippians.
Various groups have complained about the payday lending industry in Mississippi because of what they consider the large fees charged to make small loans.
Under the current law, the charge is $21.95 per $100 and in most cases the borrowers have 14 days to repay the loans.
Under the compromise reached by House and Senate leaders, a borrower will be provided a pamphlet educating them on the payday loans and will get the phone number for the Department of Banking and the attorney general’s office to report any problems.
Flaggs said the compromise would substantially reduce the annual percentage rate, which is now at 547 percent and is the highest in the country. Other financial service companies, such as banks, can charge no more than 36 percent, though payday lenders point out that when a person writes a check with insufficient funds, the cost can be much greater than 36 percent.
The law authorizing the payday lenders expires July 1, 2012. Some say they would rather see the law expire than to pass a bill that does not provide additional protection to the low-income people who generally use the payday lenders.
The payday lenders say they provide a service, offering loans to people in an emergency situation who often have no other place to turn for quick cash. It often is hard to collect on the loans, the payday lenders contend.
According to information conducted by the Mississippi Economic Policy Center, even if the compromise is approved by the House and Senate, it still would cost more to do business with payday lenders in Mississippi than in any other state in the Southeast.
Under the compromise, it would cost $50 to borrow $250 in Mississippi, compared to $30 in Tennessee and $43.75 in Alabama. It would also cost $50 in Louisiana after an additional $5 fee for verification and documentation is added.
The payday lending industry is not allowed in Arkansas, Georgia and North Carolina.
Ed Sivak, executive director of the Mississippi Economic Policy Center, said there should be additional safeguards, such as a database that would better track loans and prevent people from receiving multiple loans.
Several religious groups, including the Mississippi Baptist Christian Action Commission, have advocated additional safeguards for the borrowers.