EDITORIAL: Payday loans, scrutiny needed in light of caps in some states

By NEMS Daily Journal

Legislative examination of “payday lending” reforms – particularly lower interest caps – hasn’t soared to the top of many agendas for the 2011 session, but some key legislators believe the rate that loan businesses, as opposed to banks, are allowed to charge customers merits reconsideration.
The city of Laurel, for example, recently passed a resolution asking the Legislature to enact laws preventing exploitative payday lending.
The resolution wants the controlling law, which allows payday lenders to charge interest rates above the 36 percent imposed on all other financial institutions, to automatically repeal in 2012.
The resolution seeks enactment of a 36 percent ceiling for all consumer loans made in Mississippi. Existing law allows an effective annual interest rate on payday loans of 572 percent.
Assessing the necessity of such high interest ceilings is about determining what’s good public policy.
The 18 states where payday lending interest caps have been imposed allow interest ranging from 18 percent to 60 percent, but most are in the 20-to-36 percent range. There have been no reports of the demise of payday lending in interest-cap states.
The independent, non-profit Mississippi Center for Justice reports on its web site, “In 2006, payday lenders in Mississippi earned $200 million in fees from $43 million in loans. Those fees are equivalent to what Mississippi spent on welfare in 2007. That’s the same as charging every wage earner in the state $250. Yet, the issue has not gained widespread public awareness in Mississippi.”
Advocates, including some legislators from Northeast Mississippi, don’t see harm in the high interest rates and maintain that payday lenders serve a market segment that otherwise would not be able to borrow money.
MCJ acknowledges that the payday lenders are lawful businesses but it cites a concentration in areas with large numbers of low-income people – those most likely to have nowhere else to turn when they need cash.
About 20 percent of Mississippians have used payday lenders, the web site says.
Among the reforms sought are what appear to be reasonable suggestions:
• Developing and enacting a consumer protection package that includes a longer repayment period and a lower interest rate on payday loans.
• Enacting a Personal Finance Education Act. This act would make a personal finance course mandatory for high school graduation.
• Enacting an Adult Personal Finance Act. This act would require state and local governments, as well as other large employers, to offer their employees financial education courses once per year.
We hope the Legislature examines fully the issue of extremely high interest.

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