New legislation related to the installment loan industry was approved recently by the Mississippi Senate. Supporters of this law state that it makes options available for consumers who don’t have much cash. Those opposed to the law, though, believe that is another piece of legislation that will wind up empowering “predatory lending.” Bill SB2409 easily won with a 38-11 vote.
The main supporters of this legislation, which was put together by Senator Rita Potts Parks – the current chairperson of the Business and Financial Institutions Committee, believe that this law will help to provide short term loans to people who need it, especially after the Consumer Financial Protection Bureau begins to implement its new industry reforms later in the year.
As is to be expected, the local Center for Responsible Lending does not believe this legislation is beneficial to consumers. Whitney Barkley, from the Center, said that after reviewing the bill, she believes it will ultimately trap more consumers in the state in cycles of debt. There are similar bills being approved in State Houses all over the United States.
According to Barkley, a policy counsel from the Counsel and a former attorney for the Mississippi Center for Justice, “This is the national payday loan industry trying to create this installment loan product with payday loan prices.” She added, “More people will get caught in a debt trap. They are trying to shop this as a safe product.”
The VP of policy for Hope Enterprises – the parent company of Hope Federal Credit Union – stated that the prices on these proposed installment loans are just too expensive. He believes that the loans could be structured in a better way as well. His Jackson-based group has a mission to provide financial services to unbanked consumers in Arkansas, Louisiana, Mississippi and Tennessee.
A portion of the new bill is meant to make getting loans more convenient by making check cashing services permissible and letting payday lenders offer car title loans in unified locations. As of the time of this writing, those types of operations have to have at least a wall separating them. The new bill also makes way for installment loans that use car titles as collateral for periods ranging from two months to ten years. These loans have interest rates of 25 percent per month and can range from $500 to $2,500.
Some who like to creatively crunch the numbers extrapolate those rates to a yearly interest rate of over 300 percent. That rate is just about half of the extrapolated rates charged by payday lending locations in the state. It is important to know, however, that payday loans are never intended to be paid back over such a long term, and that most people strive to pay these loans off within a couple of weeks.
Even though the fees at the new locations would be lower than what some payday lenders charge, the consumers would be borrowing larger amounts of money and the loans would be for much longer terms than traditional payday loans. Someone, for example, who might borrower $5,000 on a 12 month loan would end up paying over $4,500 in fees by the time the loan was closed.
The new legislation in Mississippi is a perfect example of states taking these sorts of issues into their own hands, instead of simply waiting on potentially more repressive regulations to get handed down at a federal level by the Consumer Financial Protection Bureau. Alternative lending services are always a hot topic, and it appears that Mississippi is working to create more progressive solutions to allow unbanked/underbanked consumers to get access to lines of credit that traditional banks are still unwilling/unable to offer.
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