The manager of a Greenwood payday loan store says he doesn’t have a problem with proposed changes to the state law that regulates the businesses.
But an economist said whether the new rules make much difference could hinge on whether the Mississippi House or Senate version passes.
The Senate passed a weakened form of a House bill Friday, and the two chambers must now agree on a single version before it can be sent to the governor.
Payday loans are small loans up to $500 that are currently paid back with an 18 percent fee tacked on.
It works like this: A customer falling short between paydays writes, for example, a $100 check to a payday loan company. The company pays the customer $82 and holds the check until the customer gets paid.
That comes out to a 527 percent annual percentage rate if repaid in two weeks.
To lower that interest rate, the proposed law would give borrowers up to three weeks on smaller amounts or a minimum of four weeks for larger loans instead of making them due on the next payday.
“I don’t have any big problem with that,” said Edward Pope, operations manager for Quick Cash Financial in Greenwood.
Pope said people can’t go to banks to get such small loans.
“I think it’s a service that we provide that people can’t go anywhere else to get it,” he said.
It’s illegal for payday lenders to roll over loans, charge late fees or prosecute borrowers who don’t repay their debts.
But Parker Wheatley, a Greenwood native who is now an economics professor at the College of St. Benedict and St. John’s University in Minnesota, said there’s nothing stopping customers from going to multiple stores and building up an unmanageable debt.
Limiting borrowers from taking on more debt than they can afford could be beneficial to the economy, he said.
Wheatley said you don’t want to be overly paternalistic, but as the national mortgage crash demonstrated, your neighbor’s debt does affect you. If the working poor get deeply in debt, they can’t take care of their responsibilities — which get shifted instead to the rest of society.
“That’s not good for the local economy,” Wheatley said.
He said lowering the APR on payday loans to 150 percent to 220 percent would be a more efficient level, although some payday loan firms would be forced out of business at that rate.
But with more than 1,000 licensed check cashers in Mississippi — one of the highest number per capita in the country — Wheatley said it could be better to have less. (Greenwood has 20 check cashing businesses licensed with the state Department of Banking and Consumer Finance. That’s one for every 804 people, which ranks in the top third in the state per capita.)
Wheatley said a lower interest level would require an information clearinghouse to limit the numbers of loans borrowers can have at once.
Neither the Senate nor the House version is as strong as his proposal. They both lack an information clearinghouse and would not lower interest rates as much.
The Senate bill would give consumers up to 21 days to repay loans of up to $300, and a minimum of 28 days to repay loans of $301 to $500.
The House version was a 21-day payback for loans of up to $200, and 28 days for loans of $201 to $500.
Wheatley said most payday loans probably fall between $200 and $300, so the difference in the two versions is substantial because the regulation on the smaller loans is up to a certain amount while the larger loans require at least 28 days.
If the Senate version passed, the APR on an average loan would only fall from 527 percent to 520 percent, he said. But if the House bill prevailed, the APR would drop to 285 percent, according to Wheatley’s calculations.
Dan Robinson, who owns more than 25 payday lending stores throughout Mississippi, estimated that the Senate version would cause a 10 percent to 15 percent revenue drop for lenders while the House version would equal a 20 percent to 25 percent drop.
He said he expects legislators will split the difference and give consumers up to 21 days to repay loans of up to $250 and 28 days for loans more than that.
Gov. Haley Barbour has said he’s waiting to see what lawmakers send him before deciding whether he’ll sign it.
