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Columnist revisits state's payday loan policy

September 22, 2006 - Hattiesburg, Mississippi

Throughout the country, payday loans make up the newest and fastest-growing form of short-term lending. There are nearly 1,200 payday lenders in Mississippi. Payday lenders stress they are providing a needed service not available at traditional financial institutions.

In last week's article, I discussed the general concept of payday loans. This article will focus on payday loans in Mississippi and discuss other alternatives.

Regulations

Questions have been raised about regulations of payday loans practices. In Mississippi payday loan lenders are regulated by Mississippi Department of Banking and Consumer Finances.

The Department of Banking and Consumer Finance is charged with the primary examination and regulatory supervision of all state chartered commercial banks, state chartered thrift institutions, state chartered credit unions, independent trust companies, consumer finance companies, premium finance companies, motor vehicle sales finance companies, pawn brokers, title pledge lenders, consumer loan brokers, check cashers, mortgage lenders, the sale of commercial exchange and debt management service providers.

How it works

Payday lenders can charge an $18 fee on each $100 borrowed. For example, on Sept. 1 you needed $100 cash but your payday wasn't for two weeks. The lender agrees to give you the loan with an $18 service fee. The full principal with interest is due on the next payday.

Before regulations took effect in 1998, there were no limits on fees short-term lenders could charge customers. The regulations limited the amount of the fee to $18 per $100 borrowed. Also, the regulations restricted who could open a check-cashing operation and required businesses to post fees in a place that can be seen by customers.

Businesses also used to allow consumers to roll over the loan. Rollovers are now illegal. Customers were allowed to roll over two, three, or more times, before coming due. Each time the loan was rolled over, you were charged an additional fee. Those fees didn't go toward repayment of the check and were sometimes more than the value.

Other options

When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest annual percentage rate -- consider a small loan from your credit union, a loan company or family or friends.

+ Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.

+ Ask your creditors for more time to pay your bills. Find out what they will charge for that service -- as a late charge, an additional finance charge or a higher interest rate.

+ Make a realistic budget, and figure your monthly and daily expenditures. Avoid unnecessary purchases -- even small daily items. Their costs add up. Also, build some savings -- even small deposits help -- to avoid borrowing for emergencies, unexpected expenses or other items. For example, by putting the amount of the fee that would be paid on a typical $300 payday loan in a savings account for six months, you would have extra dollars available. This can give you a buffer against financial emergencies.

+ Find out if you have or can get overdraft protection on your checking account. If you are regularly using most or all of the funds in your account and if you make a mistake in your checking or savings account ledger or records, overdraft protection can help protect you from further credit problems. Find out the terms of overdraft protection.

+ If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

News Source

The Hattiesburg American, Tawnya Crockett, Staff Writer

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