COLUMBIA — Mary Still sees Missouri as a good place to get ripped off by payday lenders. That's why the state representative has again introduced a bill that would limit what she calls predatory practices of payday lenders in Missouri.
"The payday loan industry preys on young working people who are not as financially sophisticated as older people would be," Still, D-Columbia, said. "It causes our communities a lot of harm. A lot of money is being siphoned out of this state that goes to these out-of-state payday lenders. That is money that our local business people aren't receiving."
The bill Still filed Monday, House Bill 132, proposes a cap on annual percentage rates imposed by payday lenders. The current average APR for the loans in Missouri is 444.61 percent, according to a new report by the Missouri Division of Finance.
The legislation would cap rates at 36 percent, less than a tenth of the current average, in addition to allowing 90-day terms as an alternative to the current norm of 14 days.
The bill is similar to one introduced by former Republican Sen. Jim Talent in 2006 that limited the APR to 36 percent for loans taken out by military personnel and their families. The 36 percent figure comes from an FDIC recommendation for institutions that deal with small, unsecured loans, Still said.
Jamie Fulmer, director of public affairs for Advance America, Cash Advance Centers Inc., said no payday lender could do business under Still's proposal.
"If there's anyone out there that thinks they can open up a payday lending store, offer a 36 percent APR, pay their employees, pay their landlord and all the other costs associated with running their business, then they ought to do it," Fulmer said. "But you don't see anyone doing it because you can't afford to."
"If you apply 36 percent APR on a two-week loan, it breaks down to about $1.38 we'd charge to loan someone $100. That would break down to less than 10 cents a day," Fulmer added. "There's no question that a 36 percent APR applied to a two-week loan is effective elimination of the product altogether."
And that would mean the elimination of jobs as well — bad news for the roughly 150 people the company employs at its 85 outlets in Missouri, he said. In a 2010 quarterly report, Advance America noted closing 121 of its locations in states that had enacted payday lending regulations.
Furthermore, Fulmer said, payday lenders fill an important niche. Forcing them out of business would compel some consumers to turn to even higher-cost or less regulated forms of credit. He said that bank penalties for insufficient funds and overdraft charges can be more expensive than payday loan fees.
"We're in business because we offer consumers a service they value," Fulmer said. "If all those alternatives were as great as our critics portray them to be, then they'd flock to them, and we'd have a competitive issue."
But Still pointed out that people in need of similar credit have other options and that these will fill the gap if payday lenders are forced to close.
"You're seeing more and more credit unions offering short-term loans and more micro-lending options," she said. "That's the free market. It will adjust."
Still maintains that the industry in its current, loosely regulated state creates a "cycle of debt," which is a result of chronic borrowing.
Christopher Thetford, director of communications for the Better Business Bureau's St. Louis branch, agreed.
"That would be what we hear from consumers — that it ends up making a debt-trap cycle for them," Thetford said. "There are short-term benefits, but there are also long term results (that) end up making things more difficult for consumers based on what they're telling us."
The BBB's St. Louis chapter received 473 complaints in 2008 about payday lenders, according to Thetford.
Still's bill, if passed, would add Missouri to a growing list of states including Arizona, Montana and Colorado that have imposed similar limits on payday lenders.
But she faces an uphill battle in her third attempt to push payday loan reform.
Although she describes it as a "bipartisan issue," the bill comes with only 40 sponsors – all of them Democrats – and it has lacked Republican support in previous legislative sessions. Previous iterations of the bill have failed to receive a vote on the floor of the House.
Still said GOP opposition is the result of campaign contributions from payday lenders, citing the bipartisan support of similar bills in "red" states such as Arizona, where legislation has caused multiple Advance America locations to close down.
"No Republicans will sign on, and they haven't in the past, either," she said.