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Payday lending bill could jeopardize smaller lenders

The 28 days the legislation gives borrowers to repay the loan would severely hurt cash flow of small, rural lenders, the payday-loan industry says

If Mississippians want payday lenders to go away, state Rep. George Flaggs is giving them a lot of what they want, the lenders say.

The Vicksburg Democrat and chair of the House Banking & Finance Committee has introduced legislation to keep payday lending alive in Mississippi but the industry says his bill will kill off a sizable portion of the lending operations.

The Flaggs-sponsored bill that cleared the Banking & Finance Committee last Tuesday gives the lenders up to seven more years of life and lets them increase transaction amounts by $100.

As it gives, it takes away, however.

A provision that requires lenders to wait at least 28 days before closing a transaction would force smaller, rural lenders out of business, says Dan Robinson, owner of several dozen payday lending outlets in the state and president of Financial Services Center, a Mississippi-based industry group.

Under the current law, first enacted in 1998 but set to expire in 2012, lenders give borrowers until their next paycheck to pay off the loan. Most of these are bi-weekly, according to Robinson.

“It’s called a ‘payday lender’ for a reason,” he said.

Flaggs’ 28-day provision is designed to cut the annual percentage rate, or APR, of the loan from 574 percent to 278 percent. But his bill also does away with interest calculations, limiting the fee on each $100 borrowed to $21.95. With the 28-day rule, the borrower repays the same amount, though he has a longer period in which to make the payment.

So there’s no savings to the borrower, but “our money stays out twice as long,” Robinson said.

Lending outlets in small towns across Mississippi often are lending only $10,000 to $20,000 at any one time, Robinson said. Forcing the smaller operator to float that money for an extra two is a death sentence for them, he insisted.

“I’ve got some of those offices. We did the math on it. If we went to a 28-day model, we would have to close 13 out of 29 right now.”

Robinson said the cash-flow difficulties are obvious when you consider that 40 percent of the loans by outlets owned by Flowood-based Cash Inc. of Mississippi are to workers who are paid bi-weekly.

Flaggs’ bill raises the transaction cap from $400 to $500, thus allowing customers to borrow $100 more at a time.

“That could increase your outstanding (loan amounts) a little bit but not enough to make up for increasing your” the loan repayment period to 28 days, Robinson said.

Flaggs, interviewed last Thursday, said he is not budging from his 28-day provision. He said he put it into the bill after payday lenders resisted lowering the $21.95 lending a fee. He said he told them they must “give the borrower more time or come off the fee some.”

Flaggs, a legislator since 1988, withdrew the bill from a planned floor vote last Thursday. His office said no new time for a vote has been decided.

From the House, the measure would go to the Senate followed by a conference committee review to resolve any differences between versions approved by the House and Senate.

Payday lenders grant loans to borrowers who have jobs and banking accounts. The borrower leaves the lender a personal check that is to be deposited after the borrower’s next pay day. Under Flaggs’ proposal, the personal check could not be deposited before 28 days had passed but would have to be deposited by the end of 31 days.

With 961 payday-lending outlets in the state, the renewal of the 1998 loan regulation law is seen by opponents as an invitation to greatly increase reliance on the loans. Opponents such as the Mississippi NAACP, Mississippi Economic Policy Center and various church pastors argue the lending practice puts a large burden on the finances of working families.

Payday lenders say they represent an opportunity for a struggling worker to get by until his next paycheck. They say replacing the current law with a 36 percent cap on interest rates would force them out of business.

That would leave an opening for unregulated lending — an outcome Mississippi Banking Commissioner John Allison says he dreads.

“People would still have access to it. I just wouldn’t have any control over it,” he said after Tuesday’s committee vote.

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