Payday Loan Times

As The Clarion-Ledger reported in September, check-cashing services offering exorbitant interest rates - or payday loans - have sprung up across the state.

Now, federal officials are taking an interest and the paper has written a new editorial about the practices.

Based on the fees of $17 per $100 loaned over a two-week period, yearly interest from instant payday loan operations would be between 400 and 500 percent. However, according to the Center for Responsible Lending, they can reach 1,000 percent.

According to Federal Deposit Insurance Corp. Chair Sheila Bair, there are about 22,000 U.S. payday cash advance outlets.

“It almost seems as if the market has become divided between two groups: those who successfully rely on banks for virtually cost-free basic financial services and those who pay high amounts,” says Bair.

The FDIC is expected to issue draft guidelines this week giving banks credit toward meeting federal community lending requirements if they offer reasonably priced, small loans. Many credit unions are already offering alternatives to payday loans no faxing.

But the state has a duty, too.

The Mississippi Center for Justice will ask lawmakers in the 2007 session to require storefront lenders to provide information about the amounts of money they lend and demographic information about their customers, and for legislation to authorize cities to regulate the number of fast cash loan lenders.

It’s a matter of consumer protection and should be done.

As the Advocacy Director of the Mississippi Center for Justice, Yumeka Rushing, has a lot on her fiscal plate. The director recently found time to write in to the Meridian Star, however.

Here’s a paraphrasing of that letter:

The Department of Defense findings regarding the dangers of military payday loans should come as no surprise to Mississippians who live near the state’s numerous military bases.

Indeed, during the 2005 legislative session, state Rep. Ray Rogers (R-Rankin) recognized the problem and introduced a bill to prohibit check cashers from locating within 400 feet of any military installation. Unfortunately, that bill failed to even get out of committee, as did two others introduced by Sen. Gray Tollison (D-Lafayette) which would have begun to reign in the state’s payday cash advance lenders.
The Department of Defense report and Congress’ response begs the question:

• If our men and women in uniform need protection from predatory lenders, what about the rest of us?

Current Mississippi law allows providers of quick cash loans to collect fees equivalent to 468 percent APR, or 13 times the limit Congress found appropriate. And anyone with eyes to see knows that the 1,100 check cashers around Mississippi are targeting not only military bases but also low-income areas and communities of color.

If 37 percent APR is more than the market can fairly ask of Sgt. Jones, what’s fair for Mrs. Jones?

During the upcoming 2007 regular session, your legislators will have another opportunity to take a look at this critically important issue of cash advances. Bills introduced in both chambers will ask the state to gather information on how payday loans work for - and against - average Mississippians with an eye to the expiration of the Check Cashers Act in 2009. Another set of bills will seek to give local authorities some control over the growth of the industry in their communities.

I urge your readers to take the time to share their thoughts on the subject with their state representatives and senators before the legislative session begins in January. You can be sure that the cheap payday loan lenders will.

PLS Payday Loan Store locations in Alabama, Arizona, California, Illinois, Mississippi, and Wisconsin donated a total of $18,000 to community schools.

The donations were part of a Back to School promotion, in which customers nominated local schools to receive $200 donations. The winning schools were selected with drawings held at each PLS Payday Loan Store on August 26.

The cash advance company donated $5,000 to elementary and high schools in Illinois and $4,800 to Wisconsin schools. Arizona schools received $3,400, while donations to Mississippi schools totaled $3,000.

"A good education is the key to our children's future," said Charlie Murphy, executive vice-president of Chicago-based PLS Payday Loan Store. "PLS is committed to being a good neighbor and helping our community schools stay strong."

Some might say this provider of fast payday loans simply acted in the name of public relations - but that doesn't change the fact that these schools received money.

David B. Miller is a staff attorney with the Mississippi Center for Justice. He sat down with The Meridian Star last week and talked about the group's concerns over cash loan lendings.

The Meridian Star: Tell us about the Mississippi Center for Justice and your mission.

David B. Miller: It’s a non-profit law firm. Our main office is in Jackson. We also have a Coast office that does Hurricane Katrina work, and I’m in Hattiesburg with the Consumer Law Resource Center. We’ve got a staff of 12, with six attorneys. We have been open for about three years and do - generally speaking - civil legal advocacy on behalf of poorer, minority communities in the state.

The Star: What are the consumer law initiatives your firm is working on?

Miller: We are looking at bills particularly in two areas — payday lending and predatory mortgage lending.

A little background on bad credit payday loan lending. They have been regulated by the state since the 1990s. As of December of last year, there were 1,139 licensees in the state. There are an average of 12 per county. If you take thet 18 percent fee and annualize it, it comes out to about 470 percent annual interest. That’s a problem.

The other problem we see is that the location of these businesses tend to be in low-income communities; they tend to be close to military bases and on the Coast and on the river. They tend to be close to casinos, so they are praying on some pretty vulnerable people.

The Star: What do you want done about this problem?

Miller: You will hear some people argue that this is a necessary emergency service and we have to have it. If people actually use it as an emergency service, that might be a legitimate argument - which I still take issue with the amount of interest they charge - but certainly you can appreciate that people have a medical emergency and they have got to have somewhere to borrow money.

Again though, the problem we are seeing is that people aren’t using it as an emergency service; unfortunately we don’t have hard data on that because that kind of data isn’t collected under the statute. The only public data you can get now is through the Department of Banking and Consumer Finance, and there are two lines in their annual report that will give a snapshot as of December of the year of the report. For instance, it will say as of December, there were x number of licensees with x numbers of loans outstanding for x dollars.

They don’t tell you how much was loaned through the course of the year, they don’t tell you how many fees were collected and, more importantly, you can’t tell from that whether or not people are using cash advance loans as an emergency service. That is the kind of data we need.

The Star: What are their regulations? What do they have to do to become a business? How much interest they can charge?

Miller: They have to put up a bond for $10,000 and pay a cash advance license fee and have a storefront with a certain amount of space and pass a background check and that’s it.

(Read on …)

Not so fast.

That pretty much sums up the stance of Vicki Woodward, the Senior Vice President of Community Financial Services Association of America (CFSA). She responded to the September 8 editorial in The Hattiesburg American ("Legislature Should Look at Payday Industry") with the following, paraphrased letter:

The [article] failed to mention one key fact - customers want and need access to short-term credit. Thousands of hard-working Mississippians use online cash loans responsibly, and are thankful to have somewhere to turn when they need quick access to credit.

Payday advance customer satisfaction levels are in excess of 80 percent and state regulators confirm that there are very few customer complaints. The reality is customers recognize bad credit payday loans can sometimes be their best option - given the alternatives of credit card interest and late fees, "courtesy" overdraft protection/bounced-check fees or small loans that put personal collateral at risk.

Critics of the payday cash advance industry claim to be representing the best interest of the consumer, yet they want to limit the already small number of short-term credit options available without providing realistic alternatives.

All consumers deserve strong protections and we will continue to encourage state policymakers to provide responsible regulation that protects consumers and their access to credit. We believe the people of Mississippi are best served when given a variety of options and trusted to make financial decisions based on what's best for them and their families.

In the end, this is one individal that believes a faxless payday loan should at least be one of those options.

It's been too easy for providers of payday loans in Mississippi.

That's the message a recent piece in The Meridian Star wishes to get across.

Ad jingles for these companies are catchy and their signs are flashy. For a “small” fee, you can receive cash today instead of waiting until your payday. It’s almost too easy. No credit check.

They hold your personal check until payday and you walk away with the cash you need. But truth is rarely found in their catchy slogans. Spending a year paying off a two-week, $400 quick cash loan because of nearly 500 percent in annual percentage rate interest is closer to reality, according to the Mississippi Center for Justice.

The worst part: It’s the poor who rely on these types of businesses. And they’re the least likely to have the financial resources to withstand the deep levels of indebtedness caused by the harsh terms.

The Department of Defense lists payday cash loans as one of the top 10 threats to service members and their families, the Center for Justice said. Per capita, Mississippi ranks third in the nation in the number of payday lenders.

Other southern states have started regulating cash advance lenders; some have even done away with them altogether. The 1,139 payday businesses in Mississippi, however, continue to operate with little scrutiny.

When businesses take advantage of our most vulnerable citizens, we believe it is time for the state to investigate their practices. While over-regulating business is rarely a good thing, it is important that these businesses be required to report the number of payday loans online they make each year and their true annual percentage rates.

Are the same people using these businesses over and over again? If so, is this really a necessary emergency option for consumers? What are the alternatives and solutions?

It is time the state takes an active approach to investigate payday loan businesses.

In this week's Hattiesburg American, Tawnya Crockett talks about alternatives to payday loans. Let's look at them: 

• When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest annual percentage rate - consider a small loan from your credit union, a loan company or family or friends. These have lower interest rates than cash loans.

• Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.

• Ask your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate. IF you must take this action with a faxless payday loan, be aware of rollover costs.

• Make a realistic budget, and figure your monthly and daily expenditures.

• Avoid unnecessary purchases - even small daily items. Their costs add up. Also, build some savings - even small deposits help - to avoid borrowing for emergencies, unexpected expenses or other items. For example, by putting the amount of the fee that would be paid on a typical $300 cash advance in a savings account for six months, you'd have extra dollars available.

• Find out if you have or can get overdraft protection on your checking account. If you're regularly using most or all of the funds in your account and if you make a mistake in your checking or savings account ledger or records, overdraft protection can help protect you from further credit problems. Find out the terms of overdraft protection.

• If you decide you must use a cash advance loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

The following is a recent, paraphrased letter The Clarion-Ledger. It was penned by Kevin MacDonald, of Jackson.

I've been in the pawnshop business for almost 17 years in Jackson and have two instant payday loan locations outside Jackson. I tried to open one at a location in Jackson that was zoned properly, but I was denied a use permit because of the "perceived image" of our industry, and that there were too many already.

A request to put a liquor store in with similar problems was granted.

Payday advance lenders and pawnshops are the least of the worries in Jackson. We provide a service to a segment of society - a larger segment than many think. All of us fringe lenders are regulated and audited by the Department of Banking and Consumer Finance and they use a model law as the guideline that was passed by the state Legislature in 1993. It provides strict penalties for those who don't abide by the law.

Our industries do not compete with banks. The average pawn loan in Mississippi is around $50 and a payday lender's average is around $200. There are only 10 pawnshops in the Jackson city limits and, yes, there are a lot of fast payday loan providers at this time.

There used to be over 30 pawnshops in Jackson and if officials will let the market take care of itself, the number of payday loan locations will adjust over time, just like any business.I would only hope the leaders of Jackson would do as former Sen. "Pud" Graham did in 1992 when we tried to get our pawn industry regulated.

He said he couldn't support the pawnshop bill because he didn't understand the industry. So, after the session was over, he went to pawnshops around the state and educated himself. He helped us pass our bill the next year.

I invite City Council members to visit our stores and see what we do. However, if they do succeed in closing all of us down, I guess I'll send my customers to them for a $50 loan when they need a little gas and groceries till they get paid. We provide a legitimate service to people who need small bad credit payday loans and are way less expensive than a bounced check!

Simply because the Mississippi Center for Justice is pushing for new restrictions on payday cash advance lenders doesn't mean changes are inevitable in the state.

There's still a great deal of convincing to be done.

A key legislator whose support would be needed to change state law says the businesses are lenders of last resort. David B. Miller, staff attorney for the Mississippi Center for Justice, said the intention is not to shut down faxless payday loan providers, but to require better reporting.

"One thing we want to find out from a reporting bill is the frequency that the typical borrower borrows the money," Miller said to the Sun Herald. "If we find that the borrower is paying interest on the same loan for extended periods of time, that's not an emergency situation. It's one that needs to be policed because it simply traps people in a cycle of debt."

State law allows people to borrow up to $400 with a fee of $18 for every $100. The occasionally low fee payday loans are secured by a personal check and the full principal is due on payday. Figured annually, it amounts to 468 percent. Miller believes the fees should be lowered.

But Rep. Danny Guice, R-Ocean Springs, who chairs the House Banking Committee, counters that the fees are still cheaper than chasing a trail of bounced checks. Payday advance lenders are already regulated.

"When we enacted the legislation that's the law now, some of the lenders were charging $35 and $40 per $100," Guice said. "We have a first-rate banking department and banking commissioner, John Allison. He and I think a lot alike. As long as you know what the rules are and operate along the rules, you're fine. If you operate outside the rules, he's going to nail you to the wall."

The problem with the current payday loan online regulations, Miller said, is that the reporting records are kept in paper form. An electronic database would allow state regulators to see what percentage of people get trapped in debt by extending loans or taking multiple loans, he said.

Guice said privacy issues might prevent such information-gathering, but Miller said a system could be set up that takes this into consideration.The law that regulates the lenders sunsets next year, Guice said, and his committee will review the codes in the next legislative session.

Also, Guice said he believes the legal advocacy groups want to make it hard for the payday advance loan companies to do business. Miller counters that laws aren't stricter because the people affected aren't politically powerful.

We have more on Mississippi payday loans and a certain consumer group's plan to monitor their use.

Let's start with facts from this state regarding regular and faxless payday loan popularity: 

• Per capita, Mississippi ranks third in the nation in the number of check cashing/cash advance outlets.

• Around 7.6 million borrowers a year take out up to 83 million instant cash loans, which generates an estimated $2 billion in annual revenue for lenders in the state.

As you can see, the abundance of cash advances across the state is quite high. The Mississippi Center for Justice wants to do something about these facts, at least hoping to require stores to post certain information for clients to see.

Here's a glance at what the group plans to bring up to the state legislature in January:

• What percentage of borrowers take more than five no fax payday loans per year and what percentage of the total payday loan volume they account for?

• Is there a subset of borrowers who take up a disproportionate percentage of payday loans?

• What percentage of all payday loans are refinancing of previous pay day loan debt?

• On any date, what percentage of payday borrowers were indebted every single day of the preceding six months?

• Which lenders had above average rates of repeat borrowers indebtedness?

The idea, at the very least, is to give the public a clear idea about online payday advance use in the state. From there, they can form their own views.