JEFFERSON CITY — When Elliott Clark's wife broke her ankle, she couldn't work and his paycheck didn't cover the bills.
So he got a payday loan for the house payment, then another to pay the gas bill, and another to keep the lights on. In five years, they paid about $10,000 in interest on about $2,700 in loans.
It's cases like the Clarks that have caused Gov. Jay Nixon to dub the industry a "voracious predator." Nixon is proposing to transform Missouri's payday lending laws from some of the most lax to the most stringent nationally.
But industry lobbyists say no change is needed, and some Republican legislative leaders remain skeptical.
Payday loans give borrowers money in exchange for a check that is cashed on their next payday. Instead of having that check cashed, borrowers can pay the interest and roll the loan over to the next pay period.
Clark said his payday loans ballooned as fees and interest accumulated when he renewed loans repeatedly. He managed to pay off the debt. But this month, he had to take out two more payday loans totaling over $1,000. He hopes to pay that off by Feb. 1.
"You wind up where you've got more bills than money, so you end up going back and getting more," Clark said.
Nixon supported tougher payday loan regulations as attorney general, but those bills repeatedly died in the Missouri Legislature — often not even making it out of a committee. He's hoping to use his greater bully pulpit as governor to advance a bill this year.
But Nixon also has made job creation a priority, something which payday loan officials contend would be hampered by the proposed restrictions on their industry.
Missouri has more than 1,000 licensed payday lenders — about one per every 5,000 Missourians. They employ around 4,000 people and provide a valuable service for people with bad credit who face emergencies and can't turn to banks or relatives, said Dwight McQuade, president of the United Payday Lenders of Missouri.
"The governor said 'we've got to increase jobs,'" McQuade said. "You put the payday lending industry out of business and you've got a lot of people out of work."
Eleven states prohibit payday loans. Of those that allow it, only Wisconsin has no restrictions. Several states have tightened their regulations in recent years.
In 2008, Ohio adopted the nation's lowest interest caps on payday loans, at 28 percent. Arizona's law allowing payday lenders is set to expire in June, after voters last year rejected a renewal of the law.
Despite a national trend toward restricting payday lending, "Missouri has one of the most lax laws," said Jean Ann Fox, financial services director for the Consumer Federation of America.
Missouri limits payday loans to $500 and allows loans to be transferred to the next pay period six times. Lenders can charge fees and interest up to 75 percent of the total loan.
According to the Consumer Federation of America, 21 states prohibit renewing payday loans. Missouri allows the highest number of loan renewals.
Renewing loans is where borrowers get into trouble and payday lenders make their profit, said Rep. Mary Still, D-Columbia.
"Missouri is the cash cow of the payday industry," said Still, who is sponsoring a bill tightening industry regulations. "Why bother going to other states when you can come here and make a lot of money?"
According to a January 2009 Missouri Division of Finance study, the average payday loan was for $290 and the average annual interest rate was 431 percent. That would result in $48 in fees and interest for a 14-day loan.
More than 2.8 million loans, including renewed loans, were made between Oct. 1, 2007 and Sept. 30, 2008, according to the study. But the average number of loan renewals dropped from 2.2 in 2003 to 1.7 in 2009, the study found.
Nixon spokesman Scott Holste said the governor wants to reduce how much interest payday loan companies can charge, but he has not endorsed any specific legislation.
Several Democratic lawmakers have filed bills that would prohibit renewing loans, give the attorney general more power to prosecute payday lenders and give borrowers more time — perhaps up to 90 days — to repay their loan.
But House Financial Institutions Committee chairman Rep. Mike Cunningham said some of those proposals go too far. Reducing interest rate caps from their current 75 percent to 36 percent, as proposed in one bill, would force businesses to close, he said.
Payday loan industry lobbyist Randy Scherr said the industry could support lowering the number of loan renewals and could support lowering the interest cap to 60 percent, but he said a more drastic drop would kill the industry.
"That percentage rate doesn't even pay the rent, much less the employees and the bills," Scherr said. "In the states where they've put on the 36 percent, the industry is basically gone."