Mississippi needs relief from payday lenders, consumer advocates say

February 14, 2015
Anita Lee

New federal regulations could put breaks on industry that has found ways around state rules

Consumer advocates say they are relying on the federal government to loosen the grip of payday lenders on Mississippi residents least able to afford the fees.

The federal Consumer Financial Protection Bureau will soon release proposed regulations for the industry, the New York Times has reported. Payday lenders have found ways around state regulations, including a 2011 law in Mississippi that was supposed to give borrowers 30 days instead of two weeks to repay some small-dollar loans.

A 2006 federal law protects the military by capping their rates at 36 percent for short-term loans.

Payday lenders argue their rates for civilians are lower than those banks charge for bounced checks. People need their service, these lenders say, for emergencies and to make ends meet.

Gulfport resident Franklin Dwyer is one of those borrowers.

Dwyer wrote a post-dated check for $365 to get $300 from Cash Inc., a payday lender in Gulfport. He said it was his second payday loan. Dwyer works as a porter at two casinos, but found himself unable to keep up with rent because his wife was not working and her two children moved in.

Everyone is now situated with jobs, so he doesn't expect to be back for a third loan.

He doesn't have a credit card. He said he was glad a friend told him about the payday loan service. "We're still behind," he said, "but things are picking up."

Dwyer's experience is unusual, according to the Mississippi Center for Justice and a nonprofit Pew Charitable Trusts study on payday lending.

The Pew study found that, on average, a payday loan customer takes out eight loans a year of $375 each, paying a total of $520 in interest. The study found most people turn to payday lenders to meet regular expenses, not because of emergencies.

"If faced with a cash shortfall and payday loans were unavailable," the study says, "81 percent of borrowers say they would cut back on expenses. Many also would delay paying some bills, rely on friends and family, or sell personal possessions."

$100 costs $120

Mississippi is one of 27 states with permissive regulations of payday lending, the Pew study found.

The 15 states with the most restrictive regulations have no pay-day storefronts, the Pew study says. The numbers are based on research from 2012 and 2013.

"It's remarkable to me that we allow an industry like this to exist within our borders," said Paheadra Robinson, director of consumer protection for the Mississippi Center for Justice.

Mississippi's 2011 law established two tiers of payday loans.

Loans of $250 or less typically have a two-week repayment term and loans of $251 to $500 must be repaid in 28 to 30 days. A customer must prove they have a job and income source to borrow the money.

They offer a check, or an automatic withdrawal from their checking account, dated to coincide with their payday and the loan's time frame. The fee to borrow money for two weeks is $20 for each $100 borrowed. For 30-day loans, the fee is $21.95 per $100.

When the fee is expressed as an annual percentage rate, interest amounts to 521 percent for a two-week, $200 loan.

Payday lenders have to clearly show these rates on loan applications. The fees also are posted in their offices.

Robinson said most borrowers are unable to repay the loans in such a short time, so they take out more loans.

"You're giving people a loan knowing you are accepting a bad check for the loan," she said. "Any industry modeled on that is not a good business. You're waiting for them to get paid to honor the debt."

While the 2011 Mississippi law required lenders to allow 30 days for repayment of $250 or more, they can get around it by offering multiple loans in smaller amounts, consumer protection advocates say.

Lenders also are prohibited from offering a new loan before the old one is paid. But it is perfectly acceptable to pay off a loan with one paycheck, then take out a new loan because that paycheck will no cover other expenses.

Borrowers need relief

Such permissiveness for payday lenders only exacerbates the financial situations of poor people in the nation's poorest state, consumer advocates say.

"One of my greatest concerns about our small dollar loan industry - particularly those of less than $500 - is that there is currently no mechanism to track the number and dollar of loans that a borrower has outstanding and no mechanism to determine whether or not a borrower can afford to repay a loan," Ed Sivak, chief policy and communications officer for Hope Enterprise Corp., said in testimony before the state House Banking and Financial Services Committee.

"While there are loan limits, the current law allows borrowers to move from lender to lender amassing an insurmountable level of debt."

Hope, a nonprofit community development finance institute, encounters these borrowers when they come to Hope Federal Credit Union looking for a way out.

Sivak recommended to the House committee a cap on the total amount of loans outstanding, based on a percentage of monthly income.

He also said borrowers should be allowed to repay the loans in equal installments over six months, with a fee structure that would discourage lenders from issuing new loans before the old ones are paid.

Nobody, Sivak told the Sun Herald, denies that small loans should be available. He also thinks the Legislature has been receptive in listening to proposals that would improve the business for consumers.

But, in the end, he said: "If you look at our payday lending laws relative to other states, they're definitely tilted in favor of the lenders.

"It's pretty clear that the only way Mississippi consumers are going to get any relief is through federal intervention."