High-interest loans are pushing Mississippians toward bankruptcy
The percentage of Mississippi households without a bank account — the so-called “unbanked” — rose sharply in 2017 even as the national percentage fell last year.
A full 15.8 percent of households in Mississippi were unbanked, borrowing money or cashing checks outside the banking system, according to an every-other-year survey released Tuesday by the Federal Deposit Insurance Corporation, a major bank regulator.
The survey, which has been done since 2009, showed that on a national level the number of unbanked households fell to 6.5 percent, down from 7 percent in 2015 and 7.7 percent in 2013.
That makes Mississippi’s rising percentage, more than double the national average, all the more remarkable. The state’s 15.8 percent rate was up from 12.6 percent in 2015 and 14.5 percent in 2013.
Mississippi also ranked poorly, relative to the rest of the nation, in the measurement of the underbanked — households where a member of the family has an account at an insured financial institution but has obtained financial services or credit outside of the banking system. Neighboring Southern states also fared poorly.
“In a lot of the Southern states, they have the unfortunate convergence of both a lot of families who are struggling to make ends meet and government officials that turn a blind eye to the pernicious practices that exploit those families,” said Lauren Saunders, associate director of the advocacy group National Consumer Law Center.
In a sign that the Mississippi economy is improving, however, the percentage of area households classified as underbanked was 22.5 percent, well above the national average of 18.7 percent but a drop of three percentage points from the rate in 2015.
Underbanked households are also characterized as ones that over the past 12 months went outside the banking system for a money order, to cash a check or send money abroad, taken out a loan in advance of a paycheck, borrowed against their car title or from a pawn shop, used a rent-to-own service or borrowed against an expected tax refund.
Use of these kinds of products in Mississippi actually fell slightly along with the underbanked number. About 11.4 percent of Mississippi households took out alternative-loan products from non-bank lenders in 2016 or 2017, a reduction of half a percentage point from 2014-2015 survey.
A recent Sun Herald investigation revealed that federal bankruptcy data shows Mississippi trails only neighboring Georgia in the number of bankruptcy filings in which the nation’s three largest car title lenders are listed as creditors.
Mississippi in 2016 expanded the range of high-cost loans that could be offered in the state, over the opposition of major religious groups. The latest FDIC survey included questions about small-dollar installment loans that are now offered in the state thanks to the new Credit Availability Act.
“They did so despite opposition from faith groups, civil rights organizations, consumer groups and many others who do not want to see Mississippians be exploited by these predatory practices,” said Diane Standaert, director of state policy for the advocacy group Center for Responsible Lending.
The survey’s appendices contain data down to the level of what are called Metropolitan Statistical Areas, which usually cover a large city and surrounding cities. For the FDIC survey, only the Jackson area was big enough to garner attention. The results showed that 5.4 percent of households in the Jackson area used alternative loan products in the time period of the 2017 survey, compared to 9.6 percent of in the prior survey.
Although that number reflects improvement, the portion of households in the Jackson area classified as unbanked rose to 17.2 percent in the 2017 survey, from 12.5 percent in the 2015 survey. Underbanked households in the Jackson area fell in the 2017 survey to 17.8 percent from 25.4 percent in 2015. This universe of Mississippians is larger because it includes people who used alternative sources for transactions such as check cashing businesses and places that wire money abroad.
The falling numbers of underbanked households may help explain why non-bank lenders are lobbying Congress and the Trump administration to relax rules designed to protect members of the armed services and the working poor from high-cost loans. The administration has signaled it plans to relax enforcement of rules that restrict to 36 percent the maximum annual interest rate for non-bank loans to active duty service members.
And, a coalition of non-bank lenders has brought a federal lawsuit seeking to thwart implementation of rules that would require them to measure a borrower’s ability to repay a loan.
The federal Consumer Financial Protection Bureau announced a settlement Wednesday with non-bank lender Cash Express, LLC, which operates in Mississippi, Alabama, Kentucky and is headquartered in Tennessee. The bureau fined the company $200,000 for what it said was routinely issuing deceptive collection letters to borrowers, and for “abusively withholding funds during check-cashing transactions to satisfy outstanding amounts on prior loans, without disclosing this practice” to borrowers.