Legislators Prepare to Take on Missouri Payday Loans, Cash Advances
By Paul RizzoPayday Loan Writer
Consumer advocates are fighting back against an industry that they say takes advantage of financially strapped Missourians.
Last year, short-term cash loan companies granted almost three million loans and charged customers an average annual percentage rate of 422 percent. Legislation being considered in the Legislature would place more limitations on payday loan companies.
A recent study by the Center for Responsible Lending found Missourians paid $317 million in fees and interest on faxless payday loans in 2005, second only to California. Many consumer advocates say it’s time to change that.
“They’re easier to find than a church probably,” said Mike Cherry of Consumer Credit Counseling Service.
Forget a Starbucks on every corner - more than 1,500 Missouri payday loan stores are in the state. The companies, which offer fast cash under $500, made 2.9 million loans last year, up 43 percent in just four years.
“If you can sign your name and breathe and will give them a check, you can get a loan,” said Cherry.
The problem is, if the payments aren’t made on time, the interest rolls over, forcing borrowers in Missouri to pay an average annual percentage rate of more than 400 percent last year.
“He borrowed $200 and has to pay back $720,” said Cherry, describing a client.
What’s worse, Cherry says, is that currently guaranteed payday loan companies can offer up to six renewals on a loan, effectively increasing the annual percentage rate to 1,650 percent.
“They’re in a vulnerable position where they need money and need money fast and ask no questions,” he said.
Cherry supports House Bill 237, which would limit the annual percentage rate on payday loans to 36 percent and prevent payday cash loans from being renewed to get around interest rate restrictions.
“Something needs to be done,” said Cherry.
HB 237 is in a special committee on financial institutions. It is not currently scheduled for a hearing. Similar bills were introduced last year and in 2004 but neither got out of committee.
In 2002, legislators passed a law that restricts the total interest and fees to 75 percent of the total loan but clearly there are ways around that as well. By the time his $200 loan is paid off, Cherry’s client will have paid $520 in interest, well more than the 75 percent limit.
