Legislation would drive up interest rates on some loans

JACKSON — Mississippi borrowers could soon pay more for some kinds of loans if lawmakers approve a bill to allow higher interest rates.

House Bill 1396 would allow loan companies to charge 99 percent interest for loans up to $1,500. The current cap is 36 percent. It would also change amounts that could be charged for loans up to $4,000. For example, the new cap would be set at 74.83 percent interest for loans of $1,600 and 56.73 percent interest for loans of $4,000.

A loan for $1,500 would end up costing the consumer about $500 more than a $1,600 loan under the new rate structure.

House Banking and Consumer Finances Committee Chairman Hank Zuber, R-Ocean Springs, said borrowers need a better alternative to paying the exorbitant interest rates charged by payday lenders. Zuber, the bill’s chief author, said most consumer loan companies would not lend less than $1,000.

Theresa Brady, commissioner of the Mississippi Department of Banking and Consumer Finance, said consumers will ultimately decide if the new rates are right for them, and that lenders will have the option of continuing to use the current interest rate structure if they wish.

“I think the consumers will have to familiarize themselves with the product being offered.”

A group of consumer advocates and religious leaders held a news conference at the Capitol yesterday to speak against the bill.

Paheadra Robinson, director of consumer protection for the Mississippi Center for Justice, said high-interest loans disproportionately impact the state’s most vulnerable, who may not qualify for loans from banks.

“This leads to a churning effect: They take out another loan to repay the first,” Robinson said.

The recession has deepened the need for greater consumer protection, Robinson said, because the state’s modest economic growth remains fragile.

But Mississippi Consumer Finance Association president Thomas Conner said the bill would benefit consumers. He said it would encourage lenders to do business with borrowers who do not have strong enough credit to qualify for a bank loan, but would protect them from the exorbitant interest and short payback periods of payday lenders.

“I’m not here to beat up on other industries,” Conner said. “I just think this is an important option for Mississippians.”

Conner said the bill also would protect consumers by limiting loan payments per month to 22.5 percent of the borrower’s gross monthly income.

Though the new rates would remain below federal caps, Mississippi Economic Policy Center director Ed Sivak said the state’s current system is better for borrowers.

“Our current structure reflects good consumer protections and we shouldn’t walk away from those,” Sivak said yesterday.

The Senate Business and Financial Institutions Committee must decide the bill’s fate by today’s deadline. Committee chairman Sen. Gary Jackson, R-French Camp, said he is taking the temperature of other lawmakers on the bill.

“I don’t want to override the committee,” Jackson said.

Rep. George Flaggs, D-Vicksburg, who co-sponsored the bill, said consumers would ultimately decide whether they’re willing to pay the higher rates.

“In a free enterprise system, the market dictates what would work and not work,” Flaggs said.

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