Organizations take on payday lending with education and options
BILOXI -- A center for justice and a community foundation have joined forces to promote options and solutions for people who seek emergency, short-term payday loans and then get trapped in a cycle of debt.
"The issue cuts to the heart of family security and economic stability," said the Mississippi Center for Justice's Paheadra Robinson, who met with the Sun Herald last week.
The Gulf Coast Community Foundation's Lauren Williams told the Sun Herald, "I was absolutely astounded to know statically what the ramifications of payday lending are for our state."
Williams said that when first approached with the information, "I thought, 'How could I not know this?'"
Payday loans, usually in the $200 to $300 range, must be paid back within a few weeks. Those who get them are required to have a source of income and a checking account, but not good credit.
But most won't be able to pay back the loan on the first try and often take out another loan to pay off the first. Each time the loan is flipped, there's a fee.
"It turns into a long-term debt for what you thought was a short-term solution," Robinson said. On the average in Mississippi, it takes
nine loans to pay off the original balance or roughly six months.
That's why Williams and Robinson, with their respective organizations, are working on a program to offer South Mississippi solutions -- to help people find alternative ways to get money when they have an emergency or a special need.
Through a $50,000 grant from the Knight Foundation, matched by $50,000 from their organizations and others, including banks and credit unions, they began in October a program of education and encouragement.
So many feel they can't get a loan any other way, Robinson said.
With education, the program outlines to the community at large the pitfalls of taking out payday loans and explain what banks have to offer.
It also is encouraging banks to offer more small, short-term loans and trying to get employers involved more in assisting employees.
The issue comes before the Legislature perennially, some suggesting a rate cap, but little has happened to curb the business.
With fees and high interest, the annual percentage rate of a payday loan can exceed 500 percent.
And the industry made more than $303 million in Mississippi in 2010, she said.
There's no database in the state, she said, but they believe as many as 400,000 have used them.
The military curtailed usage when it limited quick loans to a 36 percent interest.
Then the FDIC took action to encourage banks, she said.
"In the past, banks were unwilling to take the risk of lending to these people," Robinson said.
BankPlus has a program, she said, and three others are developing them. So far the default rate is 5 percent, close to the rate for other types of loans.
She said the industry targets the working poor and are three times more likely to be found in a minority neighborhood.
The program has a counseling component, so borrowers also can learn their rights when dealing with payday lenders.
"You can't out-market them," she said. And payday lenders have a way of delivering a personal touch to encourage borrowers to continue borrowing.