A state as poor and undereducated as Mississippi is fertile ground for those in the usury business.
People of modest means have few places they can go for a loan when they get into a financial bind. If they have credit cards, odds are they’ve maxed out their limits. Banks don’t want to lend to them because of the high risk and low reward of doing so. Their family members are just as broke and don’t have it to lend.
So, to get by, they resort to payday loans, title loans, check-into-cash loans and other financing that comes with a high interest rate. This may get them past a current crisis, but too many times it winds up putting them into even worse shape, causing them to go back again and again to the lenders, each time digging themselves deeper and deeper into debt.
The borrowers may never do the math to realize that the interest they are paying may be much more what even the most expensive credit-card companies charge.
They need protection from themselves and from those who would take advantage of their economic troubles and educational deficits.
Yet Mississippi has gone in the opposite direction, passing laws to make its most economically vulnerable even more so.
As Mississippi Today, the online news site, reported this week, when the administration of former President Barack Obama looked as if it was going to rein in the payday loan industry with tougher federal regulations, the Mississippi Legislature created an avenue to bypass them.
It authorized, with the urging of small-dollar lenders, a new product for making installment loans of up to $2,500 and charging interest at an annual percentage rate of almost 300 percent. Over a year’s time, the amount of interest on these loans winds up being more than double the amount borrowed.
That’s sinful. There should be a law against it, not a law that allows it.
Other states have enacted such prohibitions. Eighteen states, according to Mississippi Today, outlaw extremely high interest rates on small-dollar loans. Others are in the process of trying to enact limits. Mississippi, meanwhile, hasn’t budged.
Admittedly, these small loans to people of modest means are risky. A greater number of borrowers will not be able to repay all the money they obtained.
To make up for the high percentage of loans the lenders will write off as uncollectable, they have to get a higher return from those who will pay. Without a higher interest rate, this source of credit could completely dry up, leaving only knuckle-breaking loan sharks in their place.
But how high is a fair return?
Many states are gravitating toward capping interest rates at 24 percent to 36 percent annually. That range sounds reasonable — both for lenders who are willing to assume the risk they won’t be repaid; and for borrowers who are left with no other option.
