Payday: Compromise weakens reform

February 15, 2011
Editorial Board

The House vote Monday for payday lending reform represents precious little reform and appears headed to one of those legislative instances in which "victory" is declared over a problem that remains unsolved

The House and Senate conference committee compromise on payday lending legislation last week was a compromise that weakened substantive reforms. Opponents of the compromise legislation questioned the reforms, saying Mississippi will still be charging some of the highest fees in the Southeast.

"Even with the proposed changes being discussed, the maximum fee on a payday loan will remain the highest among our surrounding states," said Ed Sivak, director of the Mississippi Economic Policy Center. "In Mississippi, a borrower is going to pay more than $65 in fees to borrow $300. In Tennessee, a family will pay $30 to borrow the same amount."

Under current law a person borrowing $100 for two weeks would pay a $21.95 fee, but the compromise bill lowers the fee to $20 - or a 521 percent annual interest rate.

But Dan Robinson, who owns 28 payday lending stores in Mississippi, argues the amount Mississippians would pay for an upper-tier loan would be lower since people will have at least four weeks to pay back, rather than just two. On loans from $251 to $500, the interest rate in Mississippi would be 286 percent for the four-week period, under the compromise.

On a $250 loan, Florida and Tennessee each charge $30, South Carolina $37.90, Alabama $43.75, Kentucky $45.13, Mississippi $54.88, and Louisiana $55.

Robinson estimated the proposed changes would reduce payday lenders' revenue by 10 percent. Some opponents, including church leaders, have argued payday lenders are "preying" on poor and unsuspecting people.

Worse even than the current law is the fact the bill continues loans at more than 500 percent APR for another five years while raising the debt load under this scheme to $500. The bill also fails to bar people from taking out multiple loans.

The compromise bill doesn't address the real problem - fees that are exorbitantly high. It obscures them with blue smoke and mirrors. That's no real reform.

The House approved the bill 76-43, but was held for reconsideration. The House should reconsider. If not, the Senate should reject it and, if it doesn't, Gov. Haley Barbour should refuse to sign it.

There is a reason major religious groups are speaking out against this bill. Exploitative lending is a moral issue and the Legislature has not addressed it with this "reform."

There is no reason to act on this bill because the current law does not sunset until July 2012. With the intense lobbying in this election year, the Legislature seems incapable of achieving reasonable reform. The better course would be to take no action than saddle the state with a bad law. Payday lending needs real reform.