COLUMBIA — When Rep. Mary Still, D-Columbia, was working for then-Attorney General Jay Nixon in the late '90s, ministers in the Kansas City area reported an unusual rise in food pantry patrons. The ministers had an explanation for the increase. They said the newcomers were part of the debt spiral created by payday loans, Still said.
The issue has held her attention ever since, and in her first two years in the Missouri House of Representatives, Still unsuccessfully introduced legislation to address it. Payday loan reform will continue to be one of her priorities in the state legislature this coming session.
Payday loan reform has also caught the attention of the Columbia City Council, prompting a moratorium late last year on starting new local payday loan businesses that ended in May.
Last year, Still held a public meeting at the Columbia Public Library to hear testimonies about payday loans from industry representatives and consumers, according to a previous Missourian article.
Still’s reform plan would cap the annual interest rate for loans at 36 percent and eliminate loan renewals to prevent consumers from falling into perpetual debt, she said.
The average annual interest rate for payday loans in Missouri is 430.68 percent, according to a Division of Finance report to Gov. Jay Nixon in Jan. 2009. The National Consumer Law Center 2010 state scorecard reported the maximum annual interest rate allowed in Missouri is 1,955 percent, the highest cap in the country of states that have caps.
Still’s bill, which she has not yet filed for the 2011 session, will resemble one introduced by former U.S. Sen. Jim Talent, R-Mo., which Congress passed in 2006. It limited the annual interest rate to 36 percent for payday loans made to military personnel and their families. The bill came after the Department of Defense reported increased incidents of “predatory lending” around military communities.
“If it’s good enough to protect military families, it’s good enough for our working families,” Still said. “Payday loan businesses take desperate people in desperate situations and take advantage of them.”
Diane Standaert, an attorney with the Center for Responsible Lending, said renewal limits and bans will not stop compounding debts and back-to-back transactions.
“The 36 percent (interest rate) limit is the most effective way to stop the debt,” Standaert said.
Still has sponsored bills to regulate payday loan businesses for the past three years, but none have passed the Missouri General Assembly.
A state House of Representatives work group was formed this summer to begin the infant stages of collaboration on payday loan legislation, said Mike Talboy, D-Kansas City. Still said she will file the bill because the working group's suggested annual percentage rate was 690 percent, an almost 260 percent increase from the state's average.
Jean Ann Fox, financial director for the Consumer Federation of America, said the existing laws in Missouri legitimize the debt trap created by payday loans and do not protect consumers.
“The way they are designed, they are inherently unaffordable,” Fox said. “Too much money in too little time.”
The Consumer Federation is a nonprofit organization that regularly conducts research to advance consumer interests, according to its website.
Fox also said the average borrower has multiple loans because typically they don't have enough additional income to pay off an existing loan on payday.
“For a $35,000 income, there’s not enough in a two-week paycheck to pay the typical payday loan even if they were free,” Fox said. “To avoid the debt trap, you don’t take the first loan.”
The average loan amount in Missouri is about $300. The typical payday loan adds $15 to $30 per $100 borrowed. The customer leaves a post-dated check for the interest to be cashed on the next payday.
The customer also must begin to pay the principal. If customers cannot pay the loan off immediately, they can renew it up to six times under Missouri law, accumulating additional fees along the way.
The trouble comes when ordinary living expenses make it impossible to make payments on the loan, Still said.
“If they don’t have $300 now, they won’t have $345 in two weeks,” Still said.
Yet United Payday Lenders of Missouri treasurer Dwight McQuade said 50 percent of customers pay off loans within two weeks and then return for new credit unrelated to the first loan. He also said the annual interest rate for the loans, also called the annual percentage rate, is not an accurate measure of the business.
“Why do we have to quote a yearly rate for a two-week loan? It makes us look like crooks,” McQuade said.
Local ties to payday loans
Payday loan reform came on the Columbia City Council's radar a year ago when former Fourth Ward councilman Jerry Wade introduced a moratorium on new payday loan businesses.
At the time, Wade said the unregulated growth of payday loan businesses was, "detrimental to the welfare of the citizens of Columbia."
The council passed a citywide moratorium on new payday loan businesses, in effect from November 2009 to May 2010, to gain time to see how other Missouri cities regulate these businesses. Columbia currently has no regulations on the industry.
“The feeling was they are taking advantage of people who are least able to deal with it,” said Karl Skala, the former Third Ward councilman who initiated the council study. “[We] wanted to see if complaints that were lodged were legitimate and then decide.”
Fifth Ward councilwoman Laura Nauser said she voted against the moratorium and study because payday loan businesses are already regulated by the state. She said she has had only one or two constituents complain about payday loans during her five and a half years on the council.
“As adults, [payday loan customers] should be responsible for the decisions they make,” Nauser said. “Payday loans do a service. They are emergency access to cash for a lot of people who cannot get credit cards.”
After the City Council passed the moratorium, First Ward Councilman Paul Sturtz said he received letters from constituents in support of the ban.
“Payday loans prey on the people who are most financially desperate,” Sturtz said.
Payday loan businesses are repeatedly, disproportionately located in lower income neighborhoods, according to the Southwest Center for Economic Integrity and other studies.
According to a voluntary customer survey conducted by the United Payday Lenders of Missouri in 2008, 65 percent of borrowers were women, the largest age group (37 percent) were between 45 and 65 years old, 48 percent said their highest level of education was high school and 49 percent had incomes between $15,000 and $35,000.
The city’s study compared 13 Missouri cities with payday loan ordinances, some with business per population limitations and others with zoning and location restrictions. But decisions were stalled after elections in April, when Wade and Skala did not return to the council.
Now, discussion is at a standstill.
“It hasn’t been discussed since and I don’t forsee it coming up again unless a council member brings it up,” Nauser said.