By Patsy R. Brumfield/NEMS Daily Journal
If you’ve ever borrowed money, you know to shop around for a reasonable interest rate.
Today, with good credit, you can find a home mortgage for 4-5 percent annual interest.
But if you’re in a jam and need $300, there’s not much for you to do except turn to the region’s payday lenders – and pay up to 572 percent interest.
Some 130,000 Mississippians use payday lenders and cash-for-title businesses, and nearly 1,000 payday lenders operate across the state.
Lee County is home to 35 businesses that loan money short-term or cash checks for a fee, all regulated under the Check Cashers Act.
As the 2011 legislative session approaches, it’s the payday lenders and cash-for-title stores that are drawing consumer advocates’ attention for change.
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What’s a payday lender?
It’s a business that makes small loans to be paid back in a few weeks for a set dollar-amount fee. That fee can amount to a very high percentage interest rate.
Stacy Whitten, an employee at City Check Advance, at 123 S. Gloster St. in Tupelo, said the business caps payday borrowing at $300 and charges a $60 fee for the 14-day payback period.
She also said that for check-cashing, the fee is 5 percent on payroll checks and 3 percent on government checks, although if a customer finds a lower rate, City Check will be competitive.
The 2011 Legislature must re-examine the 1998 Check Cashers Act, which authorizes these businesses. The act will expire in 2012, without its extension.
“If you don’t have $300 now, you’re not going to have $300 by your next payday,” said Jamie Holcomb, program director for the Women’s Fund of Mississippi.
“Payday lenders know that, and that’s their business model.”
But Dan Robinson, whose 28 payday stores are scattered around the state, says they fill a void for small loans.
The Women’s Fund and others are hosting information sessions throughout the state to better educate consumers and policymakers about the issue as it returns to the Legislature.
Such a bill will go through two committees before it comes to its chamber floor for debate: the Senate Business and Financial Services Institutions Committee and the House Banking and Financial Services Committee.
Leaders of those panels are Sen. Gary Jackson of French Camp and Rep. George Flaggs of Vicksburg.
Flaggs is believed to be asking for model legislation to retain payday lending but with changes.
Friday, Baptist pastor Jackson sounded torn between concern for vulnerable consumers and his free-market economic philosophies.
“There’s a reason that payday lenders are open, someone needs their services,” he said.
But, as a former banker, he acknowledged that the days are gone when small-town banks made small loans to their residents.
With 2012 looming as the act’s expiration, Jackson predicted legislative action sooner than later, and said the outcome may be somewhere between its expiration and making no changes at all.
Across his two terms in the Senate, Jackson has reported campaign contributions of $11,550 from the industry. In 2008, when he became chairman, his reports show receipts of nearly $10,000 from payday lenders or check-cash businesses.
On Jackson’s committee are three other Northeast Mississippi’s senators – Nickey Browning of Ecru, Bill Stone of Ashland and J.P. Wilemon Jr. of Belmont. Browning and Wilemon have been members at least since 2004.
Stone and Wilemon say they are open to ways to improve the law.
“We have a great need for this kind of business,” Wilemon said last week. “There’s nowhere else people can to go borrow this kind of money.
“We don’t need to run these people out of business.”
He also said it’s a high-risk business, often used by people without substantial employment or collateral.
“With risk like that, I don’t think you can set lower rates,” Wilemon added.
Stone said he really didn’t know much about the industry or the law until he got to Jackson in 2008 and was surprised by how high the allowed interest was.
He and Wilemon said they don’t want to see anyone mistreated by the industry.
Browning could not be reached for comment.
Campaign finance contributions from the industry since 2003 total $4,250 to Browning and $1,000 to Wilemon. Stone, who was elected in 2007, shows $1,950 from the industry.
The 2010 reports showing 2009 contributions aren’t due until late January. The Mississippi Legislature opens Jan. 4.
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Mississippi Center for Justice is another state organization urging lawmakers to let the Check Cashers Act expire, or at least be reformed.
Paheadra Robinson, its director for consumer protection, says no other lending institution is allowed to charge such high interest.
“We really see the potential for people to be taken advantage of,” she said.
For reforms, MCJ would suggest more reasonable interest rates, expanded payback period from the current two weeks to 90 days and installment payback instead of a lump payment at the end of the period.
Robinson said 2011 will be MCJ’s sixth try at payday lending changes.
“We know the industry will fight us again,” she said.
Mississippi once banned lenders from charging more than 36 percent interest. But in 1998, legislation passed enabling payday lenders to charge much higher interest.
A look across the nation shows Mississippi’s rate is one of the highest.
Since 1998, the payday lending industry has spent at least $1.1 million on lobbying in Mississippi.
Mississippi’s Department of Banking and Consumer Finance is granted authority to enforce laws pertaining to the industry.
John Allison, state banking commissioner, agrees that payday lenders have their place, but consumers should understand what they’re getting into.
Bill Bynum, CEO of Jackson-based Hope Community Credit Union, says people need short-term access to credit.
But he insists it should be at a reasonable rate.
Charlotte Crowell with the Center for Responsible Lending, based in Charlotte, N.C., said other states have begun rolling back payday lending interest rates.
Montana voters, she said Friday, recently passed an initiative to cap the interest at 36 percent. That’s the third state to do so in three years.
“Thirty-six percent annual interest ought to be enough,” Crowell said.
CRL terms payday lending “predatory” and says it winds up trapping people into debt.
“They wind up taking out loan after loan after loan, just to keep up with what they owe,” she observed.
Contact Patsy R. Brumfield at (662) 678-1596 or firstname.lastname@example.org.
What’s a payday lender?
■ A business that makes small loans to be paid back in a few weeks for a set dollar-amount fee. That fee can amount to very a high percentage interest rate.
What’s a checkcashing business?
■ A business that’s not a bank and will cash your check for a fee. Typically, that’s 3-5 percent of the check amount.