High interest rates bill is step backwards

Published 3:40 pm Wednesday, April 4, 2012

Lenders wanting to get in on the payday loan action apparently have some strong advocates in the Legislature. A bill picking up steam would allow them to charge up to 99 percent interest.

As The Clarion-Ledger reported, under current law, finance companies can charge up to 36 percent on loans of up to $1,000; 33 percent on loans $1,000-$3,000; 24 percent on loans $2,500-$5,000; 14 percent on loans above $5,000; and 18 percent on loans above $25,000.

Under the proposed legislation, which already has passed the House, those companies could charge 99 percent interest, on loans under $1,500. The equivalent interest rates would vary from 55 percent for a $1,500 loan to 37 percent on a $4,000 loan.

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In 2010, The Clarion-Ledger exposed how some Mississippians have been caught in “payday debt,” falling further into financial trouble. At the time, the equivalent APR for a typical two-week payday loan was 572 percent — one of the highest in the nation.

In 2011, Mississippi lawmakers revised the law and reduced the equivalent interest rates, giving Mississippians more time to pay back loans of up to $400.

This is a step backward.

For decades, prior to a 1998 loophole, state law barred anyone from charging Mississippians more than 36 percent interest.

It’s estimated that about 130,000 Mississippians use payday lenders and cash for titles sites each year. The Center for Responsible Lending estimates the average Mississippian pays back $1,041 for each $350 borrowed.

In defending this proposed legislation, backers say Mississippians can pay back the money they owe in installments in contrast with payday lenders, which require the full amount by the next paycheck.

That’s not much help, if someone is overextended. They will still just fall further into debt, especially if they keep taking out loans — while the lenders keep collecting interest on those loans.

While the proposed law does limit the loan to 22.5 percent of a Mississippian’s gross monthly income, “it doesn’t take into account the person’s ability to repay,” said Ed Sivak, director of the Mississippi Economic Policy Center. If there are multiple loans, that figure is worthless.

“It’s a very bad bill,” Sivak says.

As the Mississippi Center for Justice notes, “Predatory lenders, such as payday loan advance shops, check cashers and car title establishments, wreak havoc in low-income and communities of color.” It’s bad business for the state to endorse it through law.