USA TODAY International Edition
Upending a culture of high- interest borrowing
Small Mississippi town, social justice firm combat payday lenders described by some as predatory
“About 75% of these business fees are being generated from more than 10 loans a year per person. It’s really a debt trap by design ... Payday lenders succeed by rolling over loans and getting more loans.”
Johnny Magee said he’s spent all 67 years of his life in the southeast Mississippi city of Laurel, but not once can the three- term mayor recall his father getting a loan at a bank.
Instead, he said the elder Magee relied upon payday lenders, prominent across Mississippi and in Laurel, known for its pine trees and the filming location of the HGTV series “Home Town.”
Magee said payday lenders offered fast, easy cash to his dad, but the loans burdened him with tripledigit interest rates and high fees. The mayor said while the loans are convenient, he believes they are financially harming his city’s 17,161 residents.
Now, he wants Laurel’s roughly 300 city employees to learn to create a budget, improve their credit scores and stop relying upon payday lenders by taking a free financial literacy course through New Roots Credit Partnership.
Ultimately, organizers want to upend the culture of high- interest borrowing and bring these consumers closer to the mainstream financial system.
“We thought it was a good way to help citizens who work for the city to have a better financial future,” Magee said.
Laurel, where 61% of the community is Black and the annual per capita income is $ 23,146, has joined a few other cities and local banks across the state to
Yasmin Farahi Center for Responsible Lending
work with the Mississippi Center for Justice, a public interest law firm, on the credit partnership program.
Officials say they are coming together to combat what they call predatory lending in low- income communities that primarily are home to people of color.
“Mississippi has had very lax regulations on payday lending,” said Max Meyers, director of consumer protection for the firm. “It’s really important for the country to know what is happening in this state. … We are fighting against injustice.”
The nascent efforts in Mississippi come as the Biden administration and Congress have passed regulations to stem payday loan practices across the country.
Meanwhile, the industry is looking to increase its lending after enhanced unemployment benefits and direct cash payments resulted in customers paying off loans and not taking out more debt during the pandemic, according to a key industry official, who added that the loans help those in financial need.
A payday loan is a short- term, highcost loan for typically $ 500 or less that is supposed to be repaid during the next pay period. An estimated 12 million Americans use them each year, according to the Federal Reserve Bank of St. Louis.
Generally, a borrower needs an active checking account, proof of income, valid identification and must be 18 years old, according to the Consumer Financial Protection Bureau.
The U. S. government agency, which monitors financial institutions, says fees may range from $ 10 to $ 30 for every $ 100 borrowed, and the annual percentage rate can exceed 400% for a twoweek loan.
Mississippi is among 37 states that have specific laws that allow payday lending, according to the National Conference of State Legislatures. The Magnolia State allows payday loans up to $ 500, with a maximum interest rate of 521%.
At least 784 payday lenders operate in Mississippi, according to its state Department of Banking & Consumer Finance records. That’s at least five times more than the number ( 140) of McDonald’s outlets.
Center for Responsible Lending, a nonprofit group that fights predatory lending, found that a typical payday borrower has an annual income of about $ 25,000, and it’s extremely difficult for someone with that little income to completely pay off a payday loan debt.
Two payday loan borrowers in Mississippi told USA TODAY that it’s typical – and easy – to roll over payday loans until the next pay period, but each time results in additional fees.
“I needed the money, and I didn’t have other resources,” said Brandy Davis of Olive Branch. “This was my only choice.”
Davis, executive assistant to the provost and vice president of academic affairs at LeMoyne- Owen College, said she racked up at least $ 10,000 in fees and interest during a six- year period of obtaining payday loans.
Yasmin Farahi, senior policy counsel for the Center for Responsible Lending, said payday loan operators in Mississippi generated about $ 229 million annually in fees, according to a 2019 study. Nationally, the figure hit $ 4 billion.
“A lot of money that is being siphoned away is coming from communities of color to payday lenders,” Farahi said. “About 75% of these business fees are being generated from more than 10 loans a year per person. It’s really a debt trap by design … Payday lenders succeed by rolling over loans and getting more loans.”
States such as Mississippi that have a large population of Black residents are often targeted by payday lenders in advertising their products, according to a University of Houston Law study published in December. However, the mainstream banking industry largely targets white consumers, the study found.
The study, for example, found that while Black people make up 23% of payday lending customers, at least 35% of the photographs on these lenders’ websites depict Black people.
Ed D’Alessio, Ed D’Alessio, executive director of INFiN, a consumer lending industry lobby group, said payday loan operators do not target people of color. Instead, he said operators are providing a service to individuals in need of a quick, short- term cash infusion they likely cannot get at traditional banks or credit unions.
“This industry is one that opens its doors every single day with the hope and goals of serving the customer,” D’Alessio said. “Those customers have a need and sometimes a very acute need, and there is no place else for them to go and we work with them.”
D’Alessio said payday lenders help borrowers cover basic services like food, medicine, shelter and utility bills.
D’Alessio said borrowers have gone “through the calculus” and know what it costs to obtain an unsecured short- term loan, and often the cash infusion helps borrowers avoid bouncing checks or enable them to fix a car that’s needed for a job.
“Our customers are very savvy,” he said.
Payday loan interest rates in Mississippi can hit 521%, according to the Center for Responsible Lending, while those rates can exceed 600% in Utah and Texas.
D’Alessio said those figures are misleading and overstate the “cost of credit” because they are based on annual interest rates, while most payday customers only borrow money for a few weeks. Therefore, he said the cost of a payday loan is usually $ 10 per $ 100 borrowed.
While D’Alessio and Farahi disagree on how the cost should be portrayed, they do agree that capping payday loan interest rates at 36% or lower makes it financially difficult for payday lenders to succeed.
Farahi said 18 states and Washington, D. C., have stopped payday loan operations by implementing low- interestrate caps on loans.
D’Alessio said that while low rate caps force out payday lenders, borrowers may turn to online lenders or pawn shops.
Farahi added that payday lenders remain successful in most states because of their lobbying power.
The website Open Secrets, which tracks money in politics, reported that payday lenders spent at least $ 4.22 million on lobbying last year, the highest level since 2017.
“There is not enough protection,” Farahi said. “But ridding the market of these predatory lenders will create more space for low- cost alternatives and responsible credit products.” Magee, the Laurel mayor, agrees. “The sad thing about it is the Legislature sets the laws that allow these operations to be able to do business and they ( lawmakers) don’t seem to be eager to rein them in,” he said.
Magee said that may change in his hometown thanks to a partnership with The First Bank.
Johnathan Strickler, president of The First Bank in Laurel, said he’s looking forward to hosting and teaching a financial literacy course with city employees in early May as part of the New Roots Credit Partnership.
“The first step is education,” Strickler said. “Ultimately, what I would like to do is give them enough education to change the course of generations.”
Financial institutions that are part of the program may offer graduates of the class a low- interest loan of up to $ 1,500 to wipe out high- interest payday loans, said Meyers of the Mississippi Center For Justice.
Yumekia Jones, program manager for Mississippi Center For Justice, said while the program continues to grow in Mississippi, there has been interest in replicating the program in other states that have payday lenders.
Magee said he’s a big supporter of the financial literacy classes, but so far there has not been much interest among city employees.
“We have had some hesitancy, we are looking to have department heads and supervisors push the information,” he said. “It’s going to take some convincing. But, we will get there.”