Rep. Adrienne Wooten, a Hinds County Democrat, tried unsuccessfully again this year to fix a glitch in Mississippi’s payday lending law that was suppose to give borrowers 30 days to repay loans of more than $250.
Instead of the 30 days, borrowers have been getting only two weeks to repay the loans before new fees kick in.
A provision in Mississippi’s 2012 Checking Cashing Act established two tiers of loans, the first tier applying to loans of $250 or below and the other to loans that when combined with fees do not exceed $500. The lower tier mandates a 14-day repayment period and the second a 30-day one.
The way around the law is simple. Payday lenders issue two loans or more with two-week repayment periods, each with fees of up to $23 per $100 loaned. They’ll take in as much in fees from the two-week loans totaling more than $400 as a single one-month loan of the same amount.
In fashioning the 2012 Check Cash Cashing Act, which permanently authorized payday lending in Mississippi, legislators allowed the cap on the loans to go from $400 to $500. In exchange, borrowers were supposed to get 30 days to repay loans of $250 or more.
The loophole – whether intentional or not – ensured lenders would not have to have their money lent out for more than 14 days at a time. Many lenders had complained that 30-day repayment periods would hamper their cash flow and force them to draw back on their loans or close up shop altogether.
Rep. Wooten said she expected her glitch-fix to die in the House Banking Committee, just as it did the past three years. “It’s not going to come out,” she said of House Bill 790 several days before the deadline for bills to come out of committee. “It’s not something the majority wants to take place.”
The bill would have limited payday lenders to issuing a single check to cover the amount of all loans exceeding $100.
Payday lending and the potential it has for burdening the working poor is seldom mentioned among legislators these days, including members of the Banking Committee, according to Wooten, who has been on the panel the last two years.
“You don’t really hear anyone talking about payday lending’s impact on the community,” she said.
Banking Committee Chairman Hank Zuber III and Senate counterpart Gary Jackson, chairman of the Senate Business and Financial Institutions Committee, conceded in interviews in August 2014 that the glitch should be fixed. But neither wanted to act on it, saying they instead prefer to wait for the federal Consumer Financial Protection Bureau to issue rules for payday lending. Payday lending fell under the authority of the 3-year-old bureau through its creation by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Jackson said he expected the CFPB “will take a fairly strong stance in the future.” He had predicted action would come in November, but it did not happen.
Zuber said at the time he wanted to wait “to see what they do.”
Zuber said this week he had discussions with Chairman Jackson about a fix for the checking cashing law and had considered introducing a bill similar to Wooten’s HB 790. He did not say, however, whether he would back HB 790.
Jackson introduced a pair of amendments to the Check Cashers Act, though neither addressed the ability of a lender to collect as much in fees on multiple 14-day loans as a single 30-day loan. Neither bill made it out of committee by the deadline.
One, SB 2046, maintained a licensing requirement for payday lenders but eliminated a provision that voided fees and principal owed an unlicensed lender by a borrower. The other, SB 2201, gave the lender the option of allowing a 30-day repayment period on a Tier One loan of below $250.
“It didn’t close the loophole,” said Ed Sivak, chief policy officer for Hope Enterprise Corporation, parent of Hope Federal Credit Union.
“At the very least, we need to go back to the original intent of the law and create the two-tier structure that would prohibit the practice of loan splitting,” he said Tuesday after spending the day at the Capitol.
Wooten, in an interview last week, challenged the truthfulness of a statement made in August by former longtime House member George Flaggs, Zuber’s predecessor as chairman of the Banking Committee. Flaggs is now mayor of Vicksburg.
Flaggs said in an interview last year with the Mississippi Business Journal he would not have allowed the 2012 Check Cashing Act to pass his committee had he known about the provision that allows a way around the 30-day repayment rule.
“He was chair when I first drafted it,” Wooten said of her fellow Democrat. “I can assure you he knew exactly what was going on.”
Sen. Jackson also insisted in August that drafters of the 2012 law did not anticipate their legislation left room to negate the 30-day repay period. The law intended to limit the borrower to a single tier-one loan, “not several of those” at the same time, he said.
Attorney General Jim Hood interpreted the law to say otherwise and issued an opinion in 2012 saying so.
Backed by Hood’s opinion, many of Mississippi’s more than 1,000 payday lending stores ceased all tier two lending and began limiting their lending to tier one increments, typically four $100 loans.
It is uncertain when the Consumer Financial Protection Bureau will issue payday lending rules that could ultimately fix the hole legislators left in Mississippi’s 2012 law. The CFPB has issued white papers each spring for the two years detailing the damage it says payday lenders do to the financial well being of borrowers.
The white papers expressed specific alarm about the frequency in which many borrowers use payday loans annually and indicated the new rules may include cooling off periods between loans. Two thirds of the borrowers in the CFPB’s survey took out seven or more payday loans a year.
While new restrictions on payday loans are expected, an outright ban on the loans is unlikely. Payday loans, which require the borrower to have both a job and a bank account, are a necessary resource for borrowers who have an immediate expense that must met or have a significant enough influx of cash by the next payday to retire the debt, the bureau’s study concluded.
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