WHAT OTHERS SAY: Scandalous payday loans prompt voters to act

Monday, August 15, 2011 | 6:28 p.m. CDT

The Missouri General Assembly’s failure to do its job has again raised the prospect of citizens taking matters into their own hands through a ballot initiative.

Lawmakers’ continuous refusal to deal with Missouri’s deserved reputation as the nation’s “puppy mill capital” paved the way for last year’s ballot initiative requiring humane treatment of breeding dogs and their puppies.

Not until after the measure passed did leaders get serious about rewriting the state’s lax laws — if only to water down the voter-approved regulations.

Likewise, the legislature has refused for several years to take on substantive reform of the loose laws that make Missouri’s payday lending industry the most plentiful and permissive in the nation.

Frustrated by the legislature’s inaction and an effort this year to pass a sham reform bill, a coalition of faith-based and civic groups has united in an attempt to place an initiative petition on the 2012 statewide ballot.

The petition, which has been approved for circulation, would cap the annual percentage rate on a short-term loan at 36 percent, which is the limit that Congress approved for loans to U.S. military families.

Seventeen states have already capped the rate at 36 percent. Missouri’s ceiling is 1,950 percent, with the average annual percentage rate on payday loans last year at 444.61 percent.

Gathering a sufficient number of signatures to place an initiative petition on the statewide ballot is a daunting task. However, reformers in Arizona and Montana pulled it off, and voters in both states approved substantial changes.

Missouri’s recent history with payday loan reform attempts is abysmal. In 2009, the House speaker refused to assign legislation prepared by Democrat Mary Still of Columbia to a committee.

In 2010, the same House leader, Republican Ron Richard (now a state senator), sent Still’s bill to a committee chaired by a legislator who operated a payday loan business.

In this year’s session, Republicans in the House pushed through a bill that capped the annual percentage rate at 1,564 — plenty high for Missouri to maintain its ignominious reputation as the nation’s payday loan capital. Fortunately, that deceptive “reform” bill never moved in the Senate.

Lenders say a cap of 36 percent annual interest would kill the short-term lending industry in Missouri, leaving citizens with poor credit and banking histories nowhere to go if they run into trouble. But that’s the legislature’s fault for not looking in good faith for a middle ground. There is simply no excuse for Missouri’s lending laws to be vastly more permissive than any other state.

“I saw what happened every time (Still) brought a bill to the legislature,” said Jim Bryan, a retired United Methodist pastor from Columbia who is leading the reform coalition. “We’re basically concerned about the fairness of these institutions preying on people in financial distress.”

There is a legitimate concern with Missouri’s initiative petition process being misused by out-of-state individuals and interest groups attempting to push a cause. But payday lending reform is a homegrown attempt worth pursuing, and one that the state legislature brought upon itself.

Copyright Kansas City Star. Reprinted with permission.


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Allan Sharrock August 16, 2011 | 10:04 a.m.

Ummm this is obviously a opinion piece but I think that we should know who wrote it and who they represent. Even if the editor of the star wrote the piece.

(Report Comment)
Laura Johnston August 16, 2011 | 11:38 a.m.

Mr. Sharrock,
Few papers have signed editorials as the Columbia Daily Tribune does. This was from the Kansas City Star's editorial board, not necessarily an individual writer.
Hope that helps answer your question.

Laura Johnston,

(Report Comment)
Allan Sharrock August 16, 2011 | 11:50 a.m.

It does. Thanks.

(Report Comment)
AF Blair August 16, 2011 | 8:52 p.m.

Everything is not up to date in Kansas City … the method of calculating the Annual Percentage Rate (APR). The current method was based on a U S Supreme Court case Story v. Livingston in 1839. Shall we all covert to using quills and ink wells? In this case the method of calculating is so small that it is not stated in the write-up of the case on the Internet. When the Truth In Lending Act (TILA) was passed in 1968 interest rates were low and periods long (monthly, etc.) so the difference in expressing the Annual Percentage Rate with the simple-interest method (SIARP) adopted and the mathematically-true, compound APR (CAPR) was very small. Back in 1968 there were no ubiquitous machines that could calculate compounding, so the SIAPR was adopted. Now, on payday loans the rates are high and the periods short, which causes the differences to be astronomical. In your example, the 1950% is calculating using the SIAPR. The 14-day interest rate is not stated, but easily calculated [using Excel notations and precedents: inside first ( ); compound ^; add + or subtract – or multiply * or divide / ] 1950%/365*14=75%. So, on a $100 loan for 14 days $175 must be repaid. But what is the financially, mathematically-TRUE, compound APR (CAPR), 216,944.641% , calculated as (((1+0.75)^(365/14))-1)*100. If the loan is renewed the CAPR varies if the interest is paid or not. Doubt me! Check with a PhD in Finance who is not obligated to the lending industry. But of course, the payday loan does not want you to know the CAPR. Wisconsin has a current case at their Supreme Court were the annual rate, 1338%, was called “unconscionable” as written in their law.

(Report Comment)
Corey Parks August 16, 2011 | 10:41 p.m.

The Missourian should do an article comparing the interest rates on pay loan Stores to those of banks and especially rent to own stores like Aarons.

Pay Day Loans = high intererst due to low credit
Banks = High Interest/low risk as money is created from nothing
Aaron Rental = Credit does not seem to matter and they will sell low income people outdated items for 4x the cost of new.

(Report Comment)

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