Senate, House panels differ on payday lending

Published 1:35 am Sunday, January 23, 2011

The chairman of the House Banking Committee says that if a “reasonable” deal isn’t reached on a proposed state payday lending law, the issue might be put on hold until 2012.

“Unless they come up with an agreement, a reasonable compromise, it’s best to leave it alone,” committee Chairman George Flaggs, D-Vicksburg, said Friday after the Senate passed its version of a bill to renew the state law that allows the lenders to operate for another five years.

The House passed its version of the bill Tuesday, but the two chambers must agree on a single version before a bill can go to the governor. Both proposals would renew the state law and reduce consumers’ rates, but they differ over the best way to help consumers.

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Most lenders now typically write 14-day loans, and those who can’t repay the amount in 14 days often have to take out another loan, incurring additional interest costs.

The Senate version would give consumers up to 21 days to repay loans of up to $300, and a minimum of 28 days to repay loans of $301 to $500. The House version would give them up to 21 days to repay loans up to $200, and at least 28 days for loans of $201 to $500.

Senate Banking Chairman Gary Jackson, R-French Camp, said a 28-day minimum payback on larger loans would effectively cut in half the annual percent rate charged consumers.

Flaggs balked at the Senate version, calling it worse than the system in place now. He said it would give consumers an incentive to borrow more money upfront.

“Right now, you at least have 14 days. You must give a consumer a vehicle they can borrow money from payday to payday, but it must be fair to them. It shouldn’t put them in a debt cycle,” Flaggs said.

Both versions would result in a revenue reduction for the lenders, said Dan Robinson, president of Financial Services Centers of Mississippi, a group representing about 100 members with about 500 offices.

Robinson said industry calculations show the Senate plan would be a 15 to 20 percent revenue hit, as opposed to a 20 to 25 percent reduction under the House version. He said operators in larger cites, such as Jackson or Gulfport, could withstand the revenue decrease because of their volume of business, but smaller businesses in rural areas couldn’t.

“That’s all we’re trying to do is keep anybody from getting put out of business,” Robinson said after the Senate vote.

The state’s payday lending law expires in 2012. Yet, legislators are trying to decide now whether to renew the law. Several advocacy groups have urged lawmakers to let lenders go out of business, calling their business practices “predatory.” Documents provided to Mississippi lawmakers showed that some loans from payday lenders in the state carry 527 percent annual interest rates.

“It is a shame the way they operate. I have had people call me in tears when they realized they had been tricked,” said Sen. Alice Harden, D-Jackson, who voted against the bill.

Senators debated for nearly two hours on the proposal, with much of the discussion over an unsuccessful attempt to charge the lenders a fee to create a database to track transactions and complaints against the businesses.

Sen. David Baria, D-Bay St. Louis, who proposed the database, said legislators could use the information when deciding whether to renew the law when it sunsets again.

Lawmakers were provided with information that showed at least 13 states require use of such databases.

Sen. Walter Michel, R-Jackson, fought the proposal. Michel, citing information from the state Banking Commission, said only seven complaints were filed last year and most of those were against lenders who were operating illegally.

“The industry is working well. It’s creating jobs in the community,” Michel said.

The bill is House Bill 455.