Mississippi House of Representatives Banking Committee Chairman George Flaggs, D-Vicksburg, says he wants to extend the life of the 1998 Mississippi Check Cashers Act, which allows short-term lenders a special exemption from the 36-percent annual-percentage-rate cap on loans of under $1,000. Under the Act, check-cashing operations can charge customers 18 percent simple interest in fees for loans under $400 due within two to four weeks.
I don't intend to let it sunset," Flaggs said. "I'm not chairman of a committee to put (check cashers) out of business."
In 1998, legislators passed a law allowing payday lenders to charge a standard rate of $21.95 per every $100 a borrower takes in cash up to $400.
The Mississippi Department of Banking and Consumer Finance mandates that short-term lenders compute their fees into an annual percentage rate, calculated by dividing the lender's fee by the amount of the loan, multiplied by the number of days in a year, and divided by the number of days in the load (up to 30). The calculation reveals an annual percentage rate (APR) of 572.26 percent, the Department reports.
However, Jamie Fulmer, vice president of public affairs for Advance America, which offers short-term loans, says the APR is not a fair translation of the interest rate of the loan, which cannot legally 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 500 percent percentage rate, 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."
Under state law, to get a loan, a borrower gives a payday lender a personal check, which the lender holds until the loan's due date. In exchange, the borrower receives cash, minus the lender's fees. Advance America, on Ellis Avenue, offers a maximum of a $330 payday loan, requiring a fee of about $60. Advance America holds the borrower's check for about two weeks--the course of a regular pay period. When the payment comes due, it is due in full. If the borrower does not have the money in their account to pay back the company, he or she risks getting hit with bank overdraft charges, as well as a lender fee up to $30.
Jackson City Council members say the payday lenders are hurting Jackson residents, and are popping up like mushrooms in places containing a significant population with money problems. Hinds County contains a total of 71 short-term lenders, according to the Center for Responsible Lending, which reports that short-term lenders in Hinds earned about $20 million in profits from $90 million in loans in 2009.
Ward 6 Councilman Tony Yarber wants to halt the growth of the industry and has championed a moratorium on short-term lenders in the city. The Council is still mulling the constitutionality of restricting the businesses, but Yarber said his effort to push a moratorium may be unnecessary if the Legislature allows the Check Cashers Act to expire in 2012.
"We've decided we're going to wait and see what legislators do before moving forward with our own plans," Yarber said.
But short-term lenders are working to extend their exemption beyond 2012.
"We're more than willing to sit down and talk to legislators on both sides of the issue to try to address concerns," Fulmer said. He added that capping the APR at 36 percent--the cap for long-term lenders--essentially shoehorns a short-term loan into an incompatible format. Under the traditional annual unit of measurement used by credit-card agencies and banks, the loan would amount to a charge of $1.38 per every $100 loaned, he said.
"Seven-and-a-half cents a day is what an APR cap breaks down to per $100 charged," Fulmer said. "There's no way we can conduct business under those circumstances."
Industry representatives such as Borrow Smart Mississippi are talking to legislators, including Flaggs, on the possibility of extending the exemption, and Flaggs, so far, agrees. He argues that short-term lenders fill a necessary economic niche because banks and credit agencies do not offer $100 to $300 loans.
"Do you think $21.95 on a $100 loan for two weeks is very much? You can walk out of that office and go right back in there the next day and pay it off, and it's still $21.95. Take that same bill and don't pay it for a whole year, it's still just a $21.95 fee," Flaggs said. "They can't take that bill to the DA's office. They have to collect it for themselves. They don't have a lot of power like credit-card companies."
Under the Check Cashers Act, the short-term lender cannot "renew or otherwise extend any delayed deposit check." That is, state law does not allow a lender to extend the loan for any additional fees.
While state law does not permit the same short-term lender to renew or extend any delayed deposit check, it does not keep customers from paying off an earlier short-term loan with a new loan from a different company.
But Flaggs blames the cycle of debt on customers' lack of foresight, not the lender.
"My concern is that people are captured in a cycle which could be avoided with financial education," said Flaggs, adding that the short-term lenders have a less costly policy than credit card or power companies. "Put $100 on a credit card and let it go delinquent for a year. How much will that cost you? Or how much does it cost to re-activate your cell phone or your electricity?"
Mississippi Center for Justice community organizer Alesha Netterville said MCJ is trying to convince legislators who voted to extend the Check Cashers Act in 2007. "Legislators need to be educated about the impacts that they may not know about that we are seeing in the community," Netterville said.
Flaggs said he has asked the Mississippi Department of Banking and Consumer Finance to review the issue and make a fair suggestion on how to handle the issue, and that he will conduct hearings "giving both sides an opportunity to express their feelings."
MCJ Advocacy Director Beth Orlansky suggested either allowing the exemption to expire completely or adapting it to allow borrowers 90 days to pay back the loan. "That would reduce the APR significantly, and people could probably pay it back. People need small-dollar loans, not short-term loans. There shouldn't be a requirement to pay it back in two weeks," Orlansky said. Fulmer said extending the loan period essentially changed the formula and might create a less consumer-friendly product.
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