Cracking down on payday lenders
Legislators could follow lead of Western states by enacting new set of regulations on industry
Arizona will join a handful of Western states this year in proposing legislation that enacts a new set of regulations on the title loan and payday loan industry, if not eliminate it all together.
In Mississippi, lawmakers will make the most noise over the process of crafting a budget while state revenues continue to plunge, but one member of the House Banking and Finance Committee, where a regulation bill would most likely originate, said that there could be some appetite to address the issue.
“I’ve actually looked into this,” said Rep. David Norquist, D-Cleveland, whose district and other parts of the Delta are heavily dotted with payday and title lenders.
Norquist said his major concern is the perpetual cycle of debt people who use the lenders find themselves in, paying nothing but interest and never knocking down the principle.
Ideally, that’s what any new regulations would seek to eliminate or reduce, Norquist said.
“The best way to do that is to limit the amount of the loan,” Norquist said. “If you look at credit card companies, they’re charging 20 percent, 30 percent. The difference is, they’re allowing you to put $15,000 or $20,000 on these cards. That’s where people can’t get out of the hole. If you limit your exposure, you also limit somebody’s inability to pay.”
At the same time, “if somebody makes a $300 loan on a personal note to somebody who can’t make it to the end of their month and they end up getting charged 30 percent (interest), it’s about the same as if somebody has a bank account and they overdraw four checks for $300.”
Eliminating the services payday and title-loan stores provide might sound good in theory, but that will not guarantee the demand for those services will subside.
“If you talk to any banker, they’ll tell you they’re doing a service (banks) don’t want to do, and if you over-regulate them and they go under, you’re hurting the consumer,” Norquist said. “From what I’ve seen, the check-cashing industry hasn’t done a very good job of explaining the services they provide.”
That is something national associations of payday and title loan stores is trying to rectify. The industry has self-imposed, and several states have mandated, posted warnings inside each store that warns of the dangers of relying too heavily on payday loans and title loans. The warnings also warn consumer that payday and title loans are a short-term fix and not a long-term solution.
Another step the industry has taken is the creation of a national database that seeks to prevent one consumer from having more than one payday or title loan outstanding at a time. In Mississippi, state law does prohibit consumers from having more than one outstanding loan, with a maximum of $400, at a time.
One area of title loan lending that Norquist would like to see eliminated is the practice of selling memberships to automobile clubs to people who walk in a store seeking a loan in exchange for their car title. Often, memberships in those clubs provide services like roadside assistance in the event of an emergency.
“If somebody has a significant enough need, they’ll purchase that. It’s just a way of circumventing the process,” Norquist said. “You don’t even have to own a car. They’re charging you for something you’ll never use.”
While most bills that were pre-filed before the legislative session started last Tuesday had not yet been assigned to a committee, Norquist said legislation targeting the payday loan industry has a good chance of being introduced. What is certain to be introduced is legislation that would ban the selling of club memberships or other purchase options attached to a title loan, he said.
“I think there is a desire among the general public to do something about these types of lenders,” said Sen. Terry Burton, R-Newton. “And this is the type of session that would be good for something like that, since it wouldn’t cost anything and would have a consumer-protection angle to it.” Burton said lowering the cap on interest that accompanies the loans would be a good first step.
Along with the financial consequences that can accompany heavy reliance on payday and title loans, a handful of cities in the Jackson metro area have imposed moratoriums on any new stores opening, with officials in Ridgeland, Clinton and Flowood declaring the industry prone to blight and a roadblock to economic development and good quality of life.
Last fall, Ridgeland imposed a nine-month moratorium that would ban any new payday or title lenders from opening. Included in that ban were tattoo parlors, nail salons and pawn shops.
Ridgeland Mayor Gene McGee said the city’s Community Awareness Committee would hold public hearings from now until June before making a decision on whether to allow any new lenders to open.
“We feel very strongly that a heavy concentration of certain businesses are not good for the city,” McGee said. “That’s the reason we’re doing this.”
Scott Hamilton, whose The Great River Group represents Borrow Smart Mississippi, a group of payday lenders, said Mississippi has “one of the strongest, most consumer-friendly regulatory schemes in Mississippi.”
For payday lenders, interest rates are capped at 18 percent by the Department of Banking and Consumer Finance, according to Hamilton.
“Without any specifics (that would be detailed in a bill), I don’t think we could comment more than that,” he said.
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