House committee OKs payday loan reform

Wednesday, March 16, 2011 | 9:52 p.m. CDT

JEFFERSON CITY — A bill that would tighten rate regulations and add consumer protections to the state's payday loan industry won approval over a more restrictive payday bill in a House committee Wednesday.

The passing bill's sponsor, Rep. Ellen Brandom, R-Sikeston, developed the legislation in a bipartisan committee last summer. The bill with stricter regulations, which failed to pass through the committee, was drawn up by Rep. Mary Still, D-Columbia. Still's bill was defeated with an 11-5 vote in the House Financial Institutions Committee.

Payday loan offices lend small amounts of money to people who need quick cash. The offices provide an option for borrowers who need $500 or less — most banks usually don't lend amounts less than $1,000 — and they don't require borrowers to have good credit.

Lowering annual percentage rates

The biggest difference between the bills is that Still's failed bill would have cut the annual percentage rate charged by payday loan companies to 36 percent, which is less than a tenth of the current average; Brandom's bill would cap the annual percentage rate at 1,564 percent. Because the rate is figured for a calendar year, it would be divided by 24 to figure the interest rate for a two-week loan.

The current average annual percentage rate for the loans in Missouri is 444 percent, according to a report by the Missouri Division of Finance.

Still said her goal for the legislation was to keep the payday loan industry fair and to prevent lenders from taking advantage of consumers using high interest rates.

"Never in the history of our country have we allowed usury at this rate ...  Al Capone would be embarrassed by this," Still said.

Increasing loan awareness

Brandom's bill would require loan offices to post the price for loans per $100. For example, with the current rate, a sign in a loan office would read that a $100 loan would cost a consumer $17 to borrow for two weeks, Brandom said.

Another provision of the bill would prohibit borrowers from taking out a second loan for one business day after their previous loan has been repaid. Brandom said this would curb impulsive spending. The bill would also reduce the number of times a loan can be renewed from three to six.

Staying in business

If Still's bill had passed, the 36 percent annual percentage rate on a two-week loan would break down to a $1.38 charge on a $100 loan, less than 10 cents a day.

Rep. Don Wells, R-Cabool, the chair of the Financial Institutions Committee, said this would lead to the death of payday loan offices.

"You can't operate," Wells said. "You can't even turn on your lights in a store for $1.38."

Wells owned his own payday loan office before turning his full attention to his position in the Missouri statehouse.

"The customers I had were friends and neighbors," Wells said. "I'm not talking about just the poorest of the poor; I have school teachers who use them, state workers, anyone who has too much month at the end of the money."

Three amendments were proposed to the bill in committee, but none passed the vote. Brandom's bill passed 13-3 and will move to the House Rules Committee before going to the floor for discussion.

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Donna Smith August 31, 2011 | 3:25 a.m.

The interest rate on payday loans in Missouri sounds high because there is a "fee" attached, sort of like an origination fee or any of the half dozen names they use in the finance industry and the loan is for a very short period of time. A $10 charge on $100 for a week is 520 percent interest on an annual basis, add a $5 fee and the annual interest rate is 780 percent. The problem with a payday loan is a person under financial stress has to borrow against the next payday and when it arrives, he is worse than broke. What would help more than anything would be to give the borrowers more time, maybe two paychecks rather then one to repay the loan. Plus these are not really credit worthy people, there are a lot of unpaid loans in the business.

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