Jackson Free Press

This story has been updated to reflect a correction.

The Mississippi Center for Justice says short-term lenders donate heavily to legislative banking committee chairmen in hopes of extending an exemption allowing them to charge up to $21.95 for every $100 loaned.

Short-term lenders comprised 10 of 21 donations Senate Business and Financial Institutions Committee Chairman Gary Jackson, R-French Camp reported from January to December in 2008, a total of $5,100 out of his total $14,700 for that period. House Banking Committee Chairman George Flaggs, D-Vicksburg, meanwhile, reported $4,900 out of his $64,950 total contributions from short-term lenders in 2008 and $5,100 out of his $43,675 total contributions from short-term lenders in 2009.

"It's the history of the industry to contribute to political campaigns in an effort to secure their special exception to the Small Loan Act. It would be expected to see an increase in contributions due to the fact that this exception, which expires in 2012, will see legislative action in the upcoming session," said Mississippi Center for Justice Advocacy Director Beth Orlansky. "Basically, they are protecting the way the industry conducts business in the state of Mississippi."

Orlansky said MCJ does not donate money to campaigns.

Flaggs said the suggestion of donors influencing his vote on the bill was an "attack" on his character. "The question is an insult to me. ... I take campaign contributions from pharmaceutical companies, and yet I voted against their interests. I've been in the Legislature for 23 years, and I've always voted on the merits of the issue."

The representative defended the $21.95 fee, reiterating the lenders' position that they can't stay in business if their exemption expires. He said the $21.95 fee compares favorably to credit-card companies' fines and fees that grow considerably when they become delinquent. He said the fee also compares favorably to the cost of re-activating cell phone and electricity service.

Jackson did not return calls.

In 1998, legislators passed the Check Cashers Act, which exempts payday lenders from a 36 percent annual-percentage-rate cap on loans less than $1,000. Under the exemption, check-cashing operations can charge customers a $21.95 lending fee per $100 loan--which are typically due within two to four weeks. The Mississippi Department of Banking and Consumer Finance calculates the fee into an annual percentage rate (APR) of 572.26 percent.

Jamie Fulmer, vice president of public affairs for Advance America, said the APR is not a fair translation of the interest rate, however, considering the short lifespans of the loans, which, under Mississippi law, cannot last a whole year or charge more than 18 percent simple interest.

"An APR calculation isn't how a consumer values it. In order to pay a (572 APR), the consumer would have to take out that loan every two weeks for an entire year," Fulmer said. "On average, they use us between seven and eight times a year."

The exemption is temporary and set to expire July 2012. Payday lending advocates say most payday lenders can't stay in business charging 36 percent APR on $100 loans.

Fulmer says that capping the APR at 36 percent pushes a short-term loan into an incompatible unit of measurement, which would amount to an unsustainable fee of $1.38 per every $100 loaned, he said.

To get a short-term payday loan, a borrower hands a payday lender a personal check, which the lender holds until the loan's due date. In exchange, the borrower receives cash from the lender, minus the lender's fees.

Companies like Advance America, on Ellis Avenue, offer a $330 maximum payday loan, requiring a fee of about $60. The lender typically holds the borrower's check for about two weeks--the length of a regular pay period--and will deposit the customer's check at the end of the period, as per the contract.

The practice puts the borrower at risk of bank overdraft charges, as well as a lender fee up to $30, if they don't have the money in the bank to cover the draft. Under state law, borrowers may not extend the same loan, but Orlansky argues that some payday borrowers begin a cycle of taking out subsequent loans with different payday lending companies to fund previous loans.

Borrowing $300 can accrue $65.85 in fees. If the borrower takes out eight $300 loans, he is looking at up to $526.80 in fees.

Flaggs said he was going to hold a hearing next year where both sides of the argument can debate a bill scribed by Mississippi Department of Banking and Consumer Finance Commissioner John Allison. "It's not even going to be my bill. It's going to be a bill put together by the state banking commission, which licenses (short-term lenders)," Flaggs said.

Allison said it was too early to submit any bill recommendation but said the existing statute will be tweaked in a number of ways. "There will be several introductions out there, although I don't know what all they're going to be," Allison said.

CORRECTION: A previous version of this story reported that Flaggs' total contributions in 2008 totaled $81,000. The correct amount is $65,950. Also, the figure was originally reported as $8,1000. We apologize for the errors.

Previous Comments

ID

161143

Comment

This article is yet another slam by the MCJ as their continual attack on payday lenders marches on... One quick question? Why is the MCJ slamming payday lenders so hard? Why have their attacks just begun? Methinks I smell an ulterior motive to all the recent attention... On point, however, for the MCJ to purport that their organization does not make political contributions is a mis-statement of what is actually going on... if the MCJ does not make actual contributions, one can be assured that the organzations that fund the MCJ's existence are (making contributions)... it would be nice to know who they (MCJ) receives funds from... that way we could make sure we are comparing apples to apples when the jaundiced darts are being thrown...

Author

DSP2

Date

2010-12-01T14:09:22-06:00

ID

161147

Comment

Well, there you have it. The fact that a politician takes money from the interests he is supposed to regulate does not mean that he is corrupt. Or at least, it's nothing more than the everyday corruption that is everywhere in our political system. But there is clearly a reason why the industry is giving money to these legislators. Is it out of civic duty? Or is it because a few thousand dollars here and there is a small price to pay in exchange for the millions they will make through payday loans in Mississippi? I respect Flaggs for his work on juvenile justice, but it is not an attack on his character to ask questions about his campaign finances. Would he really have us believe that the thousands of dollars he has gotten from these lenders has no influence on him whatsoever? I like to think I'm an honorable person, but if someone wrote me a check for $5,000 every year, I know it would influence my attitudes. Part of being honorable is recognizing that reality. But if it really bothers him, why doesn't Flaggs simply give back the 12 percent of his campaign funds that come from payday lenders? Ordinary people do not have thousands of dollars to give to legislators. Who will ensure that their rights are protected? We know that the banks have a seat at the table. They bought it. But do consumers have a seat at the table? Thank you for the followup, JFP!

Author

Brian C Johnson

Date

2010-12-01T15:56:08-06:00

ID

161149

Comment

It is a fee, not interest. The cable company does not charge interest to watch cable TV for a month, they charge a fee. Same with Payday Lenders, they charge a fee of 21.95 to use their money for a month. The consumers are happy to have alternative to over draft fees or credit cards. The group that is against it doesn't need the product, and the consumer doesn't want their help. Bottled water has a 4000% markup, and it takes 5 bottles of water just to make the plastic bottle it comes in. Why doesn't the MCJ do something about the price of bottled water? Any and every consumer product has a cost to bear. I would ask the MCJ if they would loan me $100.00? I will pay them back $103.00 in 30 days. I promise I will pay on time ;)

Author

snoopy1

Date

2010-12-01T16:02:00-06:00

ID

161155

Comment

Snoopy, the difference between a payday loan and bottled water is that one is a loan and the other is not. As a result, the loan is subject to banking regulations, while the bottled water is not. Do you have a better argument? I have yet to see you answer my repeated question about the actual rate of payday loans, so I'll repeat it. What if the payday lenders made only $30 on a $300 loan instead of $65? That is still far about 36 percent APR, but it is better than 572 percent. Do you have an answer to this proposal, or will you continue with these straw-man arguments about $3 profits on $100 loans?

Author

Brian C Johnson

Date

2010-12-01T23:22:04-06:00

ID

161156

Comment

DSP2, there is nothing in your post but innuendo. Let me show you how it works. One quick question? Why are you slamming the MCJ all of a sudden? Methinks I smell an ulterior motive to your recent attention. You may not get money from the payday loan industry, but one can be assured that people you know are tied to it in some way. It would be nice to know who you receive funds from. You'll note that I didn't actually make a factual claim in the paragraph above. I have no idea whether you are tied to the industry, though I continue to be amazed by the tenacious support the industry receives from apparently unaffiliated passersby. Similarly, you do not appear to have any actual knowledge about the MCJ's funding. It's hard to even say what you're accusing them of doing, but it's clear you don't have any evidence. Contrast that with the story above, where we have clear evidence that the payday loan industry gives large contributions to the legislators who will vote on extending its exemption from state usury laws. Unless you have actual evidence, all you have are sleazy suggestions. That is dirty pool, my friend.

Author

Brian C Johnson

Date

2010-12-01T23:32:18-06:00

ID

161158

Comment

The plot thickens. Big TARP "Bailout" recipient banks are using zero percent Federal Reserve Loans to finance the Payday Loan industry. http://www.huffingtonpost.com/2010/09/14/payday-lenders-banks_n_716246.html I wouldn't be surprised if the big banks don't start on getting Federal legislation to allow them to get into this business directly.

Author

FrankMickens

Date

2010-12-02T08:09:45-06:00

ID

161162

Comment

Snoopy1 ... It is 18 percent interest, not annual percentage rate, not a fee. Read the Mississippi Check Cashers Act. To receive $100, borrowers take out a loan for $121.95. Do the math: 18% of $121.95 is $21.95. The check casher keeps up to $21.95 for every $100 the borrower receives.

Author

Ronni_Mott

Date

2010-12-02T11:07:53-06:00

ID

161164

Comment

This is where payday lending becomes predatory and the PDL supporters on here won't tell you this... As Ronni noted, you pay 18% of the face value of the loan, which comes out to $21.95 for a $100 loan. Now, let's say you need another loan because you didn't get out of your financial bind in 2-4 weeks. Well, in order to take out another loan for $100, you first have to pay back the original loan. You cannot "stack" loans. So, you essentially give them back their $100 plus the $21.95 and they give you that same $100 back (not $100 more). So, once you pay that back, you just paid back and borrowed the same $100 but now you've paid $43.90 in interest on that money. The average client for a single payday lender uses that lender 3 times per year (not including using other lenders to make ends meet or pay back the first lender). So, if each time this person borrows $100 and has to pay it back plus interest before borrowing the subsequent $100, they've just paid $65.85 to borrow $100. That, my friends, is the epitome of predatory lending.

Author

eyerah

Date

2010-12-02T16:26:05-06:00

ID

161166

Comment

Risk=Reward.

Author

snoopy1

Date

2010-12-02T17:06:25-06:00

ID

161170

Comment

Eyerah, I'm not defending check cashers, but I would love to see a conversation here about options instead of simply demonizing check cashers. That's just tiresome. What alternatives are there to short-term, low-dollar loans? If a single mother can't pay the rent or feed her babies because the support check didn't come, what are her options (assuming her family and friends are as broke as she is)? What's changed in consumer behavior over the past 20 years that this business has exploded? (It wouldn't have without demand.) At what point do we look at the borrowers to gain some common sense and take responsibility for living within their means? I'm not saying my family was impoverished, but mama put lots of meals on the table consisting of potatoes and butter (and nothing else) when I was a kid, i.e., if the money wasn't there, she didn't buy stuff. I know lots of folks who got by (and get by) on a little bit of nothing without loan sharks or check cashers. I understand that this becomes something of a shell game, but is it any worse than going to a casino where the house always wins in the end? Or a state lottery where you have a one in a million chance of hitting it big? It seems to me that all this outrage would be better served in coming up with solutions.

Author

Ronni_Mott

Date

2010-12-02T18:40:08-06:00

ID

161173

Comment

Ronni, you must've misread me because i was actually agreeing with you and expounding on the point you made. To your point about what's changed in the past 20 years, what's changed is that since 1980 the cost of living has nearly doubled, but wages have only increased 25%. it's a lot harder out here now than it was 20 or 30 years ago. The problem with payday lenders is that they have special exemptions from banking regulations and abuse their power. the service in and of itself isn't necessarily a bad thing, but the practice and abuse of it is where it becomes predatory. now, many banking practices are just as bad if not worse, and banks have taken a p.r. and policy beating over the past couple of years, but check cashers and payday lenders have gone widely unnoticed and unchecked. it's time to rein them in. just because someone is poor or desperate doesn't mean there is an inherent right for a lender to take advantage of them...

Author

eyerah

Date

2010-12-02T23:21:58-06:00