Legislature should look at payday industry
September 8, 2006 - Hattiesburg, Mississippi
Drive down any city street and bet on spotting an establishment that repulses somebody.
The liquor store on the corner shouldn't sell alcohol and cigarettes. The adult bookstore is too close to a residential neighborhood. The nightclub draws a seedy element and should be shut down.
The latest type of business under that kind of microscope is the storefront operation known most commonly as a payday loan store. These are the businesses that make loans to people on the premise they will be repay the loan within a short period of time, most often, their next pay period.
The Mississippi Center for Justice, a non-profit public interest law firm that advocates on behalf of the poor, has targeted the payday loan industry as an enterprise that exploits mostly poor communities by charging exorbitant fees that are contingent on the amount of the loan.
Under Mississippi law, a borrower can take out a $400 loan, for example, and, at a rate of $18 per $100, end up paying a total fee of $72, or an APR (annual percentage rate) of 468 percent.
David B. Miller, a Hattiesburg attorney with the center, and Norman Chronister from the center's Jackson office, met with the Hattiesburg American's editorial board recently, where they made their pitch in support of legislation that would put some restrictions on the payday loan industry.
Specifically, they hope to convince the Mississippi Legislature to enact laws that would focus on four components: Collect additional data on the industry and give municipalities more control over the businesses (i.e., how many and where they are located); and, on a separate front, outlaw predatory mortgage lending practices and require that foreclosures be adjudicated.
Payday industry lobbyists argue that many of their customers are middle class individuals who often find themselves strapped financially and need a quick infusion of cash. And, indeed, many Americans of various income levels find themselves living paycheck to paycheck. But poor and lower income individuals are the most reliant on this "service," and they pay for their reliance with higher fees.
It's hard to muster any sympathy for this industry, which argues it steps in where banks refuse to tread. But the interest rates over the long term are unconscionable. Instead of using the service in an occasional emergency, the Center for Justice argues, people get trapped into going back again and again, thus running up ruinous interest.
Still, as Miller and Chronister point out, it's hard to know exactly whom the payday lenders service. The reporting laws are so lax in Mississippi, there is very little information to go on.
Nineteen states prohibit payday lending by law. Eight states allow them with no legal restrictions. The remaining 23, including Mississippi, allow them under specified conditions. But many of these other states have taken sterner measures than has Mississippi to regulate this business.
It's time for Mississippi lawmakers to do likewise, and to take a closer look at this industry and examine the impact it's having on our state, especially in Mississippi's poorest communities.
Hattiesburg American, Editorial
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