When Diane Williams experienced unusually severe pain in her back leg three years ago, the discomfort became so severe that she went to a hospital emergency room. By that time she was already seeing her doctor frequently, and despite having health insurance, Williams was having so many out-of-pocket expenses that the bills kept rising.
She turned to a local financial institution in the neighborhood – Tower Loan.
Tower Loan is headquartered in Flowood and operates consumer installment loan stores in more than 150 cities in Mississippi, Louisiana, Alabama, Missouri and Illinois. The company markets itself as a solution for people faced with unexpected expenses, offering short-term loans to cover situations like Williams’ medical bills.
“They were really nice,” Williams recalls the day she walked into the store to borrow more than $ 500. “I had no problem getting a loan from them at all. It didn’t take long.”
Williams says she made the monthly payments on time, but the high interest rate on the loans diminished her paycheck, which she earned with a local government agency. So she became a regular customer. Sometimes she took out additional loans in addition to the money she had already borrowed.
“The note was really expensive, but I needed the loan so badly because I was trying to get rid of those medical bills,” Williams said.
Mississippi gold rush
Williams’ story serves as a Rorschach test for consumer and payday loan customers.
Lenders would view Williams’ experience as a win-win situation: she used her service to get herself out of a financial jam, helping Tower Loan make a profit and provide jobs for Mississippi residents. On the flip side, critics of companies offering small, short-term loans argue that the companies are taking advantage of the desperation of poor and colored people who often do not have access to traditional banks to make quick money.
Finally, a colleague introduced Williams to Hope Credit Union, which loaned her the money to pay her Tower loan bills and charged her a much lower interest rate – 17.2 percent instead of 29 percent from Tower.
Bill Bynum, Chief Executive Officer of Hope Enterprise Corp. and Hope Credit Union, said Williams is pretty typical of people Hope has helped get out of what he calls “debt traps” – quick cash lenders rely on customers to be unable to do so do pay the money back on time, he said. The borrowers then have to extend the term of their loan, which incurs additional fees.
“Though it’s superficially marketed as a short-term emergency service, the reality is that payday loans aren’t that. If the average loan is renewed nine or ten times, that’s not a short-term loan,” Bynum said.
And the long-term earnings picture for quick cash lenders – which includes payday advance companies, title loan companies, installment lenders, and pawnbrokers – looks good. Nationally, short-term lenders collect fees totaling $ 3 billion to $ 4 billion annually, and they’re often backed by the country’s largest banks, including Bank of America, JP Morgan Chase, and Wells Fargo. These companies process an estimated $ 40 billion in credit each year.
Mississippi is particularly fertile ground for industry. In total, there are more than 1,000 short-term lenders operating in the state, Mississippi Banking Department records show. MDB regulates the industry under the Check Cashers Act.
In 2011, the Center for Responsible Lending and Consumer Federation of America surveyed state regulators and released a breakdown of payday loan fees by state. Mississippi shared the highest billed annual interest rate with Wisconsin at 574 percent. The survey shows Mississippi ranks fourth in the country behind California, Texas, Louisiana, and Florida with $ 267 million in annual fees.
“They see Mississippi as a very profitable place to do business,” said Bynum. “I have no reasonable profit concerns, but I think there is a measure of sanity and then there is a measure of greed, of abuse.”
An effective lobby
Although some states are tightening restrictions on quick loan companies, Mississippi lawmakers have been instrumental in helping the industry expand.
Paheadra Robinson, consumer protection director at the Jackson-based Mississippi Center for Justice, has seen payday lenders sway lawmakers.
“There are (lawmakers) who sincerely believe that predatory lenders are providing a service. They will need to be more connected to their constituents to understand the plight of consumers entangled in predatory credit debt, ”Robinson said. “But there are those who are purposely deaf to what is going on in this industry because of the lobbying backing them from predatory lenders.”
A review of campaign finance records shows how powerful this lobby is. As of 2011, Tower Loan has donated $ 73,500 to parliamentary candidates alone; Since 2003, the company has donated $ 187,796 to state officials.
The industry’s lobbying organization, the Mississippi Consumer Finance Association, has donated $ 255,559 in political contributions since 2003. Key recipients include Governor Phil Bryant, who raised $ 32,000 from 2007 to 2011, and Insurance Commissioner Mike Chaney, who received $ 16,000 for his re-election efforts over the same period. Lt. Gov. Tate Reeves received $ 15,000. The main beneficiaries of the legislation were Rep. Nolan Mettetal, R-Sardis, and former Rep. George Flaggs, a Democrat who stepped down from the House of Representatives in July to become mayor of Vicksburg. The MCFA also donated $ 5,000 each to Mississippi State Supreme Court Justices Josiah Coleman and Randy “Bubba” Pierce.
The payday loan watchdogs say it’s not surprising that the industry has seen so many legislative victories. During the 2013 legislature, lawmakers removed an important oversight mechanism by repealing the forfeiture provision of the Check Cashers Act. As a result, the legislature is not required to regularly review the law; Instead, a legislator would have to draft a new bill and run it through the committee process.
“There’s no consensus across the country on what is allowed, and Mississippi has been one of the more lenient states,” said Hope Enterprise’s Bynum.
The next fight
The political climate in Mississippi is unlikely to bring about major reforms. Instead, consumer rights advocates target modest legislative changes and financial literacy efforts.
The lawyers have had some success over the past few years. In 2011, lawmakers capped payday loan fees to $ 20 per $ 100 and increased the time limit for borrowers to repay the loans from 14 days to 30 days.
Despite the changes, Mississippi continues to hold the distinction of having the highest number of payday lenders per capita and some of the highest interest rates in the country – despite Mississippi’s economic position as the poorest state in the country.
“While I appreciate clarity about tariffs, people need more protection that is affordable and non-abusive,” said Bynum.
Hope Enterprise also offers financial advice and literacy workshops, and has a young child program that teaches children, and especially their parents, the importance of saving.
“Part of (our) strategy is to get them into a relationship with a custodian. Borrow yourself and if you need a short-term loan you can borrow it at a non-predatory rate,” added Bynum.
Robinson of the Center for Justice joins Bynum’s call to teach financial literacy from an early age.
“If we can start with the middle school age children, then we have the opportunity to make things better for our state. If we lead the nation in poverty, we have to do things differently, ”said Robinson.