Mississippi-payday-lending-bill

By: Javi Calderon
Mississippi Passes Payday Lending Bill

On January 18th, 2011 the Mississippi House of Representatives passed a law to restrict and restructure the payday loan lending industry in the state. The law passed 78-38 and now moves on to the Senate where opinions on the polarizing practice are more divided.

While most states are passing laws to eliminate or curtail payday lending, Mississippi is taking steps to assure the availability of cash advance loans to its citizens while establishing an environment that protects them from usury and exorbitant interest rates.

Supporters point to payday advance loans as a quick and easy option to handle unexpected expenses. Certainly the industry has found a niche as a quick credit option for under-banked, low income and poor credit Americans. Without an easily available solution for quick cash these Americans would be forced to pay expensive late fees or choose between paying bills and these unforeseen expenses.

On the other hand, critics point to payday loan customers who are crushed under a mountain of debt caused by high loan interest rates. These people struggle to survive financially due to the contractual obligations they have to payday loan lenders. Every time they can’t pay back their loan the loan gets rolled over into another pay period with a compounded interest rate.

The bill assures consumers up to 21 days to pay back short-term loans of $200 or less, and between 28 and 30 days for loans of more than $200. The law would also cap how much lenders can charge per loan, capping a maximum fee of $20 for loans of $200 or less, and a maximum fee of $21.95 for loans of more than $200.

Many states are capping interest rates at 36% APR which amounts to approximately 1.36% for a two week loan. These rates are so low that filing a loan isn’t even profitable for the lender, thus the laws effectively put payday lenders out of business. Unfortunately, law makers have fixated on the APR (annual percentage rate) even though it skews numbers dramatically when applied to two week or month long loans. Lawmakers in Mississippi are taking a much more reasonable approach.

Short-term loan lenders have been operating in the state since 1998. The current law expires in 2012 and without a new law in place loan lenders would be out of business. If the Senate passes the bill payday loans will be available in Mississippi for at least five more years.