In the News

A bad payday: Momentum building for moratorium against loan businesses

June 23, 2010

The Dispatch
Jason Browne

WEST POINT -- A Columbus native is part of a quest to stop the advance of payday lenders throughout the state, and West Point is next on his list of targets.

Scott Colom, an attorney with the Mississippi Center for Justice, a nonprofit law firm in Jackson, appeared before West Point's Board of Selectmen earlier this year to request a moratorium on issuing business licenses to check-cashing services, businesses which issue short-term loans at high interest rates.

Colom and the Center for Justice see payday lenders as predatory businesses which appeal to low income individuals who can least afford their services. Starkville and Jackson have already instituted temporary bans on new payday lending businesses after consulting with the Center for Justice, and West Point is set to take up the issue at its next board meeting July 13.

During its June 8 meeting, the West Point board held a public hearing on the proposed moratorium on payday lenders at which Colom restated the case against allowing more check-advance services to open.

"Usually someone has a financial emergency or a budget shortfall for the month. So they think the best thing to do is take out a small loan," said Colom, describing a common payday loan scenario. "The lenders charge $22 for every $100, which is the maximum (interest) allowed by law. But in two weeks or four weeks (the borrower) isn't in a situation where they can pay the interest, so they take out another loan.

"The average payday borrower takes out eight or nine loans per year and ends up paying $800 in interest."

West Point could follow Starkville's lead in instituting the moratorium on payday lenders, but interest may be low. Colom was the only person to speak at the June 8 public meeting, and West Point has just six check-cashing services listed, as opposed to 15 in Starkville and 18 in Columbus.

West Point Ward 3 Selectman Charles Collins reported he had received no citizen opinions regarding the proposed moratorium.

"I'm still looking at the information. I haven't made a decision yet. Nor have I gotten input from the constituents of Ward 3," said Collins. "Hopefully by the next board meeting I will have some constituency response."

Confidence in the movement

Ward 5 Selectman Jasper Pittman also reported no public input on the moratorium but stated he believes the resolution will pass at the next meeting.

"We've got enough (payday lenders) for this small town," said Pittman. "They take advantage of people. In my opinion, they do."

Colom plans to approach the Columbus board about instituting a similar moratorium, as well as Vicksburg and several Delta cities. If the Center for Justice can get enough communities to institute the bans on new payday lenders, he says, it may put pressure on state legislators to lower the maximum interest rate.

Columbus Ward 5 Councilman Kabir Karriem has heard Colom's argument against payday lenders, but hasn't formed an opinion on the benefit or detriment of check cashing services.

"I've heard Scott talk about (the moratorium), but before I can make an intelligent decision I need some more information," he said. "I have friends who own payday companies and it is a business. And I'm one of those that thinks Columbus needs all the (tax) help it can possibly get."

A permanent ban in Starkville?

In Starkville, city leaders are considering making the ban permanent. The moratorium was unanimously approved and instituted on Jan. 19 and lasts 12 months or until the adoption of a comprehensive city plan.

"The board determined the proliferation of these businesses were detrimental to the economic vitality of our city," said Ward 6 Alderman Roy Perkins. "My personal opinion is this resolution has been good for our city."

Ward 5 Alderman Jeremiah Dumas says there's no way to gauge the overall effect of the moratorium, but he hasn't received any complaints lately. He says much of the public displeasure with payday lenders prior to the moratorium focused more on the appearance of the buildings than the lending practices.

"Some of these businesses aren't the most attractive. One thing that really got the ball rolling is the (former) Wendy's on Highway 12 that closed and came back as a check cashing place that's yellow and red. But that made people see the number (of payday lenders) that are here," he said.

In each Golden Triangle city, payday lenders tend to cluster along the main highways or the most visible routes. Dumas and Perkins say the number of payday lenders along Highway 12 in Starkville, along with the unsightly buildings and the stigmatized nature of the business, was creating a negative impression.

The lenders' side.

One payday lender willing to speak anonymously said she doesn't argue that clusters of check-cashing services, like liquor stores or pawn shops, are a bad look for cities. However, she takes issue with the perception that payday lenders are predatory businesses taking advantage of the disenfranchised.

"Nobody forces them to come to a check casher; they come in of their own choosing. If they borrow then pay me off, they can walk out that door and never come back," said the lender, who is based in Columbus but serves as the field coordinator for the entire state for one chain. "Check cashers aren't at the top of the heap of people putting poor people in a bind. Why aren't they shutting down casinos? What about people who have credit cards out the kazoo?"

The creditor says she has no problem with the prospect of a moratorium on new check-cashing services opening because it would limit competition. "I'd love that. The less the better."

But she does take issue with the concept that legislators should exclusively target payday lenders for an interest rate reduction, or that people in her line of work don't offer a useful service.

A legitimate service

"People with an electric bill due, if they can't pay and their service is cut off they have to pay a reconnection fee. Instead they come to me and say 'I need $125.' If you only had to pay me $22 and wait two weeks, which would you do? And you don't have to ask one of your relatives (for money)," she said. "And it's not just poor people. People that work at very prominent jobs who want to go shopping or have a trip coming up and they're not getting paid until two weeks from now (borrow money)."

The coordinator does endorse some safeguards. For instance, she says a database would be beneficial to prevent borrowers from going lender to lender taking out new loans to pay old loans.

"I would tell you if you've got three (outstanding loans), you don't need another one," she said.

Even as tax-paying businesses, she says the payday lending industry is also subject to special regulations and risks other businesses don't have to endure. Federal law limits interest rates for lending to members of the military and payday lenders are not federally insured, and therefore subject to loss if a borrower files for bankruptcy.

Yet, despite the payday loan industry's claims of operating legal, fair, free-market-based businesses, Colom says check cashing services are simply attempting to deflect attention from their lending practices.

"They try to argue they're doing you a favor, but in reality they're making a profit off your misfortune," he said.