By Charlie Mitchell
OXFORD – Back when BankAmericard mailed out the nation’s first general purpose charge cards, they were illegal in Arkansas.
The reason? State laws against usury.
Usury is hard to say. Here’s how: you-sure-ree.
The word refers to the practice of charging interest when a borrower repays a loan.
It’s an ancient word. The Old Testament, the New Testament and Islam’s Quran says usury is sinful. The reason, obviously, is that it’s too tempting for those with money to lend to take advantage of those in need. It is unholy for us to exploit each other.
Laws against usury (in the form of charging what states deemed to be excessive interest) existed not just in Arkansas, but in all or almost all states. The state laws could be traced directly to God’s law.
After BankAmericard debuted in 1957, consumer demand and corporate lobbying skills both grew rapidly. Usury laws fell silently by the wayside, at least in the United States. Lenders in the Muslim world are still strictly forbidden to charge interest. (They stay in business through an assortment of “fees.”) Back in the day, Mississippi’s usury law was slightly more generous to lenders than the law in Arkansas, so a person could get a BankAmericard here. But in Arkansas, math experts figured out that a “revolving account” with one nominal interest rate really translated to an annual effective rate of well over the state-set maximum, which was about 12 percent or so.
While usury laws were on the books, people lived mostly within their means, with the exception of mortgages. These days, of course, we are a nation of credit junkies.
This session, however, the Mississippi Legislature has decided to step back into the regulatory arena, albeit timidly. House Bill 455 has been passed and Gov. Haley Barbour approves of it. At least temporarily, so-called payday lenders will not be able to continue hitting borrowers up for fees, interest and other charges that tally as high as an annual interest rate of 572 percent.
The Legislature is not acting in the name of religion. The Legislature is acting in the name of consumer protection.
As indicated, most state usury laws envisioned a reasonable return on investment in the arena of money-changing as being perfectly OK. In the same way that a merchant buys goods at one price and sells at a slightly higher price, usury laws assumed that buying and selling money would be at market rates.
Yet in Mississippi for many years, members of the Legislature – many of them elected on pledges of being “for the little guy” or “for the working man” – have sat back, watched and done nothing in the face of what has amounted to financial rape.
If mentioning the 572 percent interest rate didn’t take your breath away, how about this: The Center for Responsible Lending estimates the average Mississippian pays back $1,041 for each $350 borrowed. From a policy standpoint, the state has chosen to do nothing as the poorest of the poor – already pathetic money managers – have been pushed deeper and deeper into debt and, as a byproduct, more and more dependent on public assistance programs.
The state’s press, notably The Northeast Mississippi Daily Journal in Tupelo and The Clarion-Ledger in Jackson, have done excellent, factual reporting on the payday loan industry and the journalists’ work, coupled with lawmakers with a conscience, resulted in this year’s legislation. It chops the effective interest rate to 243 percent.
Not surprisingly, a spokesman for the payday loan cartel is well-pleased with the new law. It is a very light tap. The cartel’s lobbyists refer to any regulation as nanny government by do-gooders.
What they really do is entrap people into so much debt they’ll never qualify for credit at commercial, market rates.
It’s an interesting turn of events. With no such intention, Mississippi lawmakers have taken a tiny step back to the precepts that were once common in state laws everywhere. Few people think of the Bible as a consumer protection document, but it is.
Charlie Mitchell is a Mississippi journalist. Write to him at Box 1, University, MS 38677, or e-mail firstname.lastname@example.org.