Payday loan bill passes in House

February 15, 2011
by Molly Parker

Compromise legislation that cleared the House Monday would extend the payday lending industry in Mississippi another 2 1/2 years while lowering the equivalent 572 percent interest rate allowed under current law.

Religious and consumer advocates lined up against the bill, saying it didn't go far enough to protect consumers who get locked in a cycle of debt with payday loans.

Rep. John Mayo, D-Clarksdale, declared debt "the new slavery," prompting Rep. Omeria Scott, D-Laurel, who is black, to stand up in the middle of Mayo's floor speech and object to his comparison.

"These payday lenders are no better than the plantation commissaries of 150 years ago," Mayo said.

Supporters argued consumers in financial straits need options to secure small-dollar loans when unexpected needs arise.

"It's really no different than the fees being charged on a checking account when you overdraft your account," said Rep. David Norquist, D-Cleveland.

Under House Bill 455, which passed 76-43 (it required a three-fifths vote), consumer fees would be capped at $20 fee for every $100 cash received for checks written up to $250. For loans on checks over $250, the fee would be capped at $21.95 per $100 cash received, the same as in current law for all loans.

However, under the legislation, consumers who take out the larger loans would have at least 28 to 30 days to pay it back.

Now, standard practice requires repayment in two weeks, though the law allows up to 30 days.

"So all we are actually knocking off is $1.95?" asked Rep. John Hines, D-Greenville, who voted against the bill.

The bill would increase the amount payday lenders could write checks for loans. The cap would move from $400 to $500, but that $500 would include the fee. Stretching out the repayment period would lower the equivalent interest rate.

The smaller loans would be due between 1 and 30 days. A $200 advance under a 14-day loan would equate to 521 percent interest. A $300 advance under a 28-day loan would equate to 267 percent interest.

House Banking and Financial Services Committee Chairman George Flaggs, D-Vicksburg, said payday lenders also would be required to provide customers with a pamphlet spelling out terms of the payday lending law and listing a hotline to the attorney general's office and the Mississippi Department of Banking and Consumer Finance to report problems.

"I think this is a reasonable compromise between the payday lending industry and the consumer," Flaggs said. "Is it perfect? No. Is it better? Yes."

If the Senate passes and the governor signs the bill, it would take effect Jan. 1 and expire July 1, 2015. The current law is set to expire July 1, 2012.

In a news release, Borrow Smart Mississippi, a payday industry advocacy group, called the compromise bill a "groundbreaking two-tier structure for short-term loans that will protect customers without eliminating choice."

But the Rev. Carol Spencer, who chairs the Mississippi Religious Leadership Conference, said no bill at all would be better than this compromise legislation.

She advocates that payday lenders should be subject to the same 36 percent interest rate caps as banks and other lenders.

"I don't particularly want them to go away. I just want them to come under the same regulation the banks and the credit unions and small lending institutions have to come under," Spencer said.

Payday lenders argue the comparison is not apples-to-apples because they deal in small-dollar, short-term loans and say that such a restriction would put them out of business in the state.