On Oct. 3, 2010, Mississippi Business Journal editorial (“Payday loans won’t go away”) described payday lending as a “scheme.” Well, we would agree. But we would also describe these loans as “predatory” and “debt traps.”
And the Women’s Fund of Mississippi is not alone in our disdain for payday lending. In 2006, the Department of Defense issued a report to Congress that found “predatory lending undermines military readiness and harms the morale of troops and their families.” As a result, Congress and President Bush passed a law in 2007 that caps the interest rate at 36 percent for military borrowers.
The Women’s Fund of Mississippi is a member of Mississippians for Fair Lending, a coalition of 18 organizations working to raise public awareness about the dangers of predatory payday lending in Mississippi. We are not interested in putting payday lenders out of business, but we do believe all Mississippians deserve the same consumer protections as our military families. And that protection includes a 36 percent rate cap for payday loans.
The average interest rate for a payday loan in Mississippi is 572 percent, one of the highest rates in the country. According to the Center for Responsible Lending, in a single year, Hinds, Rankin and Madison counties have a total of 124 payday loan stores that generate over $34 million in fees paid by local residents. Payday lenders claim they’re just mom and pop small businesses but we know better. The vast bulk of the revenues generated by payday lenders leave Mississippi. Seven of the top 10 lenders in Mississippi are headquartered elsewhere.
After spending millions of dollars on lobbying and campaign donations in Mississippi, payday lenders received a special statute in 1998 that exempts them from the interest rate cap that applies to legitimate financial institutions. Their lobbyists are currently trying to extend this statute. It is time to level the free market’s landscape and allow private entities to compete with the same rules. Legitimate banks and credit unions, including BankPlus and Hope Credit Union, currently offer small-dollar loans at low interest rates but they cannot compete in a market saturated with payday lenders on every corner. The truth of the matter is short-term loans only benefit the lender, while small-dollar loans can be both beneficial to the lender and the borrower.
There is something terribly wrong when the needs of cash-strapped workers are exploited to support a billion-dollar poverty industry. It is also morally repugnant. No one in Mississippi needs to pay a 572 percent to borrow money. We all deserve access to short-term, transparent and fair loans.
Carol B. Penick is executive director of the Women’s Fund of Mississippi.