Proposed payday loan law does little, should not pass

February 12, 2011
By Ed Sivak, Guest columnist

With conference report now filed on House Bill 455, the payday lending reform debate moves into its final stages. Though some changes have been made, if lawmakers pass the bill, Mississippi will remain home to some of the most expensive payday loans in the region.

Additionally, the proposed law lacks common-sense improvements for enforcement.

While the proposed law adds tiers of fees and varying repayment terms that differ based on the face value of a check, the new law lacks a critically needed database to enforce the new complexities. At the end of the day, the bill's fees are still too high, enforcement is lacking and the current payday lending law does not need to be changed until next year. If proposed changes are not passed, nothing will change, business will continue as usual.

One of the problems with the proposed bill is that the fees are still too high. Under the proposed law, a person that needs to borrow $300 will pay over $65 in fees in Mississippi. In contrast, a person in Tennessee will pay $30 to borrow $300. Mississippi fees to borrow $300 are higher than any of the surrounding states. The proposed law will give Mississippians a little extra time to pay off the $300 loan; however, what matters is the money coming out of people's pockets.

The proposed law also creates a loophole around the extra time requirement on larger payday loans. The loophole means the same person looking to borrow $300 could be steered into getting two loans for $150 with a shorter two week repayment term. Fees would be slightly lower on the $150 loans than on the one $300 loan due to the new proposed fee tiers. The borrower, however, could turn around and take out another two loans for $150 two weeks later, and still get around the "consumer protection" repayment term of 28-30 days on larger loans. Lenders would have more incentive to split the loan especially with repeat borrowers because they could increase volume. More loans with two-week terms equal more fees.

Another missed opportunity includes the omission of a statewide database for enforcement. Thirteen states, including Alabama, Kentucky, South Carolina and Florida, have databases that prevent abuse. When implemented in Florida, the database allowed regulators to find that 16 percent of payday borrowers and 30 percent of transactions were actually out of compliance prior to having the database. The database fixed the problem while making regulatory requirements more efficient. Without a database in Mississippi, we'll never know how many borrowers or transactions are out of compliance. With the potential loophole in the proposed law, the absence of a database is a glaring oversight.

Claims that a no vote will kill jobs are also unfounded. Despite all of the attention, the law does not sunset until July, 2012. The Legislature does not have to act this year.

In light of the high fees and missed enforcement opportunities, voting down the proposed law is an appropriate course of action. Furthermore, the law can be revisited next year with no loss of jobs. Any other action will leave working families asking the question - why should Mississippians pay more than those in other states?

Ed Sivak is director of the Mississippi Economic Policy Center.