The Mayor of Laurel, Mississippi, is trying to combat large fees and high interest rates in the payday loan industry. According to Mayor Johnny Magee, payday lenders promised his father quick and cheap cash, but the loans came with triple-digit interest rates and exorbitant fees. And because some Mississippians are unable to obtain loans from traditional banks, the mayor claims they are being financially harmed by payday lenders.
What Are Payday Loans?
A payday loan is a type of short-term borrowing in which a lender extends credit at a high-interest rate dependent on your income, per Investopedia. The principal of the loan is usually a percentage of your next paycheck.
It's important to remember that payday loans often have high-interest rates since they are typically used for short-term, emergency credit. However, according to The Guardian, "Most borrowers use payday loans for basic needs, and the more they borrow, the deeper they go into the hole. Invariably their balance gets rolled over into a new loan, with each additional round inflicting more and more fees."
Government Officials Can Take Swift Action
Mayor Johnny Magee wants Laurel's city employees to take a free financial literacy course to learn how to construct a budget, improve their credit scores, and stop relying on payday lenders. "We thought it was a good way to help citizens who work for the city to have a better financial future," Magee said in USA Today.
It's worth noting that state governments can impose regulations to limit the interest rate on payday loans. For example, Nebraska capped payday loan interest rates at 36%, according to CNBC. So, many people are hoping that something similar will eventually happen in Mississippi.
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