By Cara Spencer, Consumers Council of Missouri
Last week, the Missouri House Financial Institutions Committee passed a bill that purports to regulate payday lending, but consumer organizations argue that the bill essentially maintains the status quo for an industry that preys on our state’s poorest residents and are hoping to stop it from moving forward this week.
Missouri has more payday lenders than McDonald’s, Starbucks and Wal-Mart stores combined. Last year, 1.62 million payday loans were issued in Missouri alone, averaging 1 in 4 residents. Loans carried an average APR of 462.78%. and the fees and fines add up to tens of millions of dollars. This is detrimental not only for Missouri families but its terrible for our state’s economy.
Despite years of efforts by consumers groups, faith leaders, labor and others in Missouri to lower the rates on these loans to 36% annually, the Missouri House is moving forward HB 2657 which will allow 35% every two weeks, translating into 910% APR. Given that the average loan in Missouri carries a 462% APR, this does nothing to change the status quo.
This not only lacks the real regulatory changes the state of Missouri needs to protect its citizens, passage of this bill leaves Missouri far behind the regulation of all of our surrounding states, all of which have rate cap of 15%.
Secondly, while the bill reduces the number of renewals from six to two, all surrounding states prohibit them all together. Reducing renewals does not stop the debt trap. These types of provisions are easily evaded by payday lenders who keep borrowers stuck in back-to-back loans. Even in states which prohibit any renewal, borrowers are stuck in an average of 9 loans a year and payday lenders earn 60% of revenue from borrowers with 12 or more loans a year.
Finally, the bill loosens the regulatory burden on payday lenders by reducing the fee for payday lenders to operate from $500 to $300 a year, making it less expensive to operate and providing the state with less funds to provide oversight.
At a time when our federal government is loosening regulations on the banking and predatory lending industries, now is the time for our state to stand up and enact real consumer protections. We urge the Missouri legislature to enact real reform to predatory payday loans in this state, and to reject HB 2657 – a sham bill that maintains payday lenders status quo.