14 Feb Reilly Morse: Let’s have fairness for all in short-term lending
If ever there were a case for a national response to a consumer problem, it is in the realm of payday lending. These abusive short-term loan stores populate nearly every strip of storefront of nearly every main thoroughfare along the Mississippi Coast. Until 2006, they clustered particularly heavily near military base gates such as our own Keesler Air Force Base, but Congress stepped in with regulations to limit payday and vehicle-title loans by capping rates, barring mandatory arbitration, and stopping rollover loans on the same terms.
Still, slippery payday lenders found loopholes in that federal law, and have done the same with the much-weaker state counterpart in Mississippi. Our check-cashing law had a loan-splitting loophole that enables the industry to flip loans within 30 days. This session, our Legislature again failed to close this gap, and excused its inaction on the basis that new protections are expected from the Consumer Finance Protection Bureau.
We hope the CFPB will issue stronger rules, rather than fixing a few glitches. Because, just as the Military Lending Act is supposed to leave no solider behind to face debt traps alone, so should we leave no Mississippian — civilian or military — behind when it comes to payday lending. Reasonable rate caps, limits on rollover loans, and bans on mandatory arbitration are necessary to restore balance between consumers and these lenders.
Like many abuses of consumers, the payday lending model has its roots in a real need. Many south Mississippi families who live from paycheck to paycheck will fall into financial crisis with one unexpected car repair or medical bill. And there is nothing wrong with a reasonable profit for those who extend short-term credit in this setting.
But when the lenders engineer the loan to ensure multiple rollovers, at increasing cost to the borrower, it sets up a vicious cycle from which no borrower can ever emerge.
In the past, lobbyists for payday lenders have fought off regulation claiming the industry can survive only with hefty interest rates and fees and unlimited rollover of loans.
Here at Mississippi Center for Justice, we knew this was not true and worked with financial institutions and employers to establish the New Roots Credit Partnership, an alternative to payday lending. In this program, we bring together employers and mainstream financial service companies to extend small loans to employees with reasonable repayment plans and interest rates. Two cities, Jackson and Canton, have signed on to the partnership and more employers have expressed interest.
Just as those who serve in the military deserve protection against predatory lending, so do our hardworking school teachers, bus drivers, public employees and other working Mississippians.
Since our state Legislature is now unwilling to correct its own errors in our state law, we hope the regulations from the CFPB will restore fairness in short-term lending and hope in the hearts of hardworking Mississippians.
Reilly Morse (Rmorse@mscenterforjustice.org) is president of the Mississippi Center for Justice.