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Survey shows struggle to survive between paychecks

More than 1 in 3 Mississippians took out payday loans or other type high-cost, short-term loans in last five years

Mississippi’s legislators faced with having to decide whether to renew a payday lending law in 2012 have a new factor to consider:  More Mississippians than ever are living paycheck-to-paycheck.

Unless conventional banks make short-term, low-dollar loans more widely available, Mississippi residents could find themselves with no where else to turn once they’ve exhausted their paychecks and their next payday is still days away.

The Financial Industry Regulatory Authority, or FINRA, details the reliance of Mississippians on non-bank borrowing in an extensive national survey.

Nearly six in 10 Mississippians live paycheck to paycheck, the survey found, and noted that more than one-in-three state residents (34 percent) have engaged in some form of high-cost, non-bank borrowing during the last five years.

Mississippi residents are fourth most likely to use high-cost, non-bank borrowing such as payday loans, says the State-by-State Financial Capability Survey, which surveyed more than 28,000 respondents.

A big reason for the use of such loans?

Fifty-eight percent of Mississippians report spending more than or about equal to their household income between paychecks. This compares to 55 percent of all Americans.

Jamie Fulmer, marketing director of Advance America Cash Advance, which has dozens of outlets in Mississippi, said the FINRA findings are not surprising. They point up the need to maintain the regulated payday loan industry in Mississippi, he said.

“It’s just a reality that millions of Americans find themselves in,” he said. “In today’s landscape there are very few credit options open to them.”

To get a payday loan you must have a job.  You can borrow up $330 and can be required to pay up to $400 on your next payday to cover the loan.

The borrower leaves a signed check for the $400, which the lender can cash at the end of two weeks if the loan is not paid. If the check bounces, the lender eats the costs, Fulmer said.

By state law, the payday lender can’t grant another loan until the current one is repaid. Nor can it assess additional fees beyond the $70 the borrower agrees to pay when taking out the loan.

The state law governing payday lending is up for renewal in 2012. Opponents of the law want it replaced by a 36 percent cap on interest rates on short-term loans.

Fulmer said the cap would rid of the state of its more than 900 payday lending centers. But they’ll be replaced  by largely unregulated Internet payday loan lenders, he warned.

“You’ll open the floodgate to the unregulated,” he said. “It will be a field day.”

State banking commissioner John Allison largely agrees, and says the current law is better than the alternative of having no regulation. He said he would endorse renewal of the current law.

Carol Penick is director of the Jackson-based Women’s Fund, part of a coalition of 18 groups making up Mississippians for Fair Lending that is pushing for the 36 percent interest rate cap.

“We’d like to see them held to the same standard as banks,” she said in an interview in the fall.

Penick and other opponents say the practice puts a huge burden on borrowers and squeezes them into a cycle of debt.

Selena Swartzfager, who as president of the Mississippi Council on Economic Education, heads an effort to teach financial literacy to the state’s school children, and said she is not surprised that nearly six in 10 state residents struggle to financially survive between paychecks. But she said she still thinks residents are too quick to turn to short-term payday loans.

“I do not buy a good reason to allow payday lending is because a large percentage of Mississippians live paycheck to paycheck,” she said. “In fact, I see it as somewhat of a crutch for people.  If a person knows they can easily get a loan, it takes away some of their incentive to save.” she said of the loans.

Folks barely getting by on their paychecks include more than low-income earners, she said.  Many people just spend until their finds are depleted, she noted.

More restraint, fiscal discipline and financial knowledge could help reduce reliance on payday loans, according to Swartzfager.

She said the state has a large number of organizations and agencies that can help adults learn the ins-and-outs of responsible spending. “There are a lot of opportunities for training of adults,” she said.

Other findings of Financial Industry Regulatory Authority’s survey include:

>> Mississippi residents on average are less financially literate than residents of other states.

>> Planning Ahead: 66 percent of Mississippi residents do not have a “rainy day” fund to cover three months of unanticipated financial emergencies. This compares to 60 percent of Americans nationwide.

>> Financial Knowledge: On a test of five basic financial literacy questions, Mississippians answered on average 2.86 financial literacy questions correctly, compared to the national average of 2.99 correct answers.

>> Financial Decision-Making: 60 percent of Mississippi residents did not comparison shop for credit cards, better than the national average of 62 percent.

FINRA developed the State-by-State Financial Capability Survey in consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy.

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