GUEST COMMENTARY: Proposed payday loan bills don't solve problem

Thursday, January 12, 2012 | 4:28 p.m. CST; updated 9:43 a.m. CST, Friday, January 13, 2012

*CLARIFICATION: An earlier version of this article misattributed information as a direct quotation from Dan Feehan. The second sentence should have been attributed to Still.

This is a response to David Rosman's column: Two new Missouri Senate bills attempt to tackle payday loans.

The nature of payday loans is neither forgiving nor helpful to most Missouri consumers.  Missouri's laws are some of the weakest in the country, allowing lenders to charge an average APR of 445 percent.  As Mr. Rosman points out, several senators are now proposing legislation to change Missouri's payday lending laws.

Unfortunately, Mr. Rosman fails to understand that the Senate bills promising reform allow an APR of 300 percent — 10 times higher than the federal legislation adopted to protect military families from predatory lenders.

The federal legislation was supported by former U.S. Sen. Jim Talent and Congressman Sam Graves, both Republicans.  In my opinion, the same protections given to military families should be given to hard working Missouri families.

Mr. Rosman is the rare consumer who was able to pay back his loan without going too far into debt. But, he is not who the industry targets.  The target is the working poor, mostly young women, with children, who can't possibly pay the loan back without getting another loan. Because of the 300 percent APR still permitted under the current Senate proposals, this same spiraling debt trap will continue.

The CEO of Cash America, Dan Feehan, explains the predatory payday lending business best: "The theory in the [payday] business is you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's really where the profitability is." The most important factor in capturing these repetitive, long-term customers is the maintenance of unreasonably high interest rates that customers simply cannot meet.*

We are likely to see many new payday loan reform proposals in the legislative session this year — many of which will be written by the industry itself. The fact is the industry has hired leagues of well-paid lobbyists to take fast action this year due to the current initiative petition on the ballot. That petition, which caps the rate at 36 percent, has overwhelming support throughout the state, particularly among churches and the faith community. I say let the people vote. The public is demanding reform and we as legislators should not stand in their way.

State Rep. Mary Still is a Columbia Democrat.

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mike mentor January 12, 2012 | 5:06 p.m.

Sounds simple to me Mary. Just send those folks that are being taken advantage of by the pay day loan people over to a bank for a loan.

Legislate the profit out of the pay day loan business and that will be their only choice for credit. none...

(Report Comment)
Mark Strawberg January 12, 2012 | 9:01 p.m.

Legislating APR caps is not the solution. I mean many payday loan lenders left the states that put caps on their APRs. This is not the best outcome for the consumer who needs such a loan and is being turned down by mainstream credit instituitons due to bad credit, etc. A better alternative is for example limit the # of loans that an average person can tale out, disallow providing loans to cetain groups like the military personnel, etc.

(Report Comment)
Ellis Smith January 13, 2012 | 8:08 a.m.

Those familiar with the lending activities of organized crime may be struggling to understand how the operations of these currently "legitimate" lenders differ from those who operate their loan "offices" from a bar or the rear of a pizza parlor.

If you fail to meet the repayment schedule imposed by these "legitimate" lenders do you risk having your kneecaps broken by a ball peen hammer?

(Report Comment)
Mark Brandom January 13, 2012 | 9:15 a.m.

Rep. Still conveniently leaves out the fact that active military personnel have an on base (and lower cost) option to borrow money in an emergency - whereas the general public does not. Had this not been the case, I highly doubt Talent and Graves would have supported the federal legislation she mentions. Although it's quite possible she isn't even aware of this as she is more concerned with shutting down taxpaying businesses that employee well over a thousand people throughout the state (is she concerned whatsoever about their jobs?). I have no "dog in this hunt", but I do believe in capitalism and self-responsibility; both of which Rep. Still and many of her liberal cronies in Jefferson City are determined to destroy and eliminate. Enough is enough.

(Report Comment)
Ray Shapiro January 13, 2012 | 11:38 a.m.

("The nature of payday loans is neither forgiving nor helpful to most Missouri consumers.")
What alternative is being formulated to help those who need their loan obligation written off and what kind of help are we offering in place of "free enterprise?"
Seems like there's good intentions at work with a bad approach by politicians on both sides of the fence.
And now, I'm reading about "the churches" advocating for the elimination of this "alternative/last legal resort" of money lending.
Perhaps if the churches banned together to offer low interest loans to reputable individuals for emergency purposes, or the nonprofit agencies in our state coordinated emergency lending to those with no alternatives then they would in a sense be competing with the higher interest lender.
If the churches and the nonprofits worked out a decent lending alternative amongst themselves, then most people will value their help or ultimately be faced with high interest rates from these "for profit" lenders.

(Report Comment)
Jackie Whiffin January 13, 2012 | 11:55 a.m.

Representative Still has been on a mission to drive the payday lending industry out of Missouri for a few years now. There is a reason she has not been successful, first and foremost is where do the millions of hard-working Missourians go for a small short-term loan when faced with an emergency? Why is she so intent on closing down legitimate tax paying businesses and forcing many people to the unemployment line? The industry helps many people and yes, there are a few that are not responsible and do not pay their loan and these few are the stories you read about, not the millions of people who do appreciate the service and use it responsibly. You keep mentioning the high APR and yes, it does calculate to a high APR due to the the fact this is a small dollar two-week loan, not a 52-week loan. We charge $15.00 per $100.00 loaned, per state law. For those who cannot pay the loan back when due, we offer an extended repayment plan with no additional fees that is paid by over their individual's next four pay periods. Mr. Feehan's statement has been used out of context for several years and only the consumer groups that want this industry to disappear use it. This is the United States of America and last time I checked, it is a free nation that allows us to make our own choices and not those dictated by the government. Mr. Brandon is correct, enough is enough!

(Report Comment)
AF Blair January 13, 2012 | 12:10 p.m.

The article by Missouri State Representative, Mary Sills, gives the reader the scope of some of the common data on Payday Loans in the U.S. To expand on that data for clarity: when the APR on a payday loan is stated as 445%, and the obvious loan period is 14 days, then the periodic percent rate for that 14-day period is 17%, found by using the NOMINAL, simple-interest calculation (using Excel notations) 445%*14 days/365 days = 17.068%. That NOMINAL method is as per the calculation in the Truth in Lending Act (TILA) of 1968 stated in Part 226, Appendix J(b)(1). However, any Finance Teacher should tell you that the NOMINAL APR is not the mathematical-true method, but the COMPOUND method is. Webster’s Dictionary and Black’s Law Dictionary both define “Nominal” as “Not real or actual”. The mathematically-true compound APR on the 14-day periodic rate of 17% is 5,983.808%, calculated as (((1+(17/100))^(365/14))-1)*100. TILA requires that any APR stated on the loan form, even though the untruthful NOMINAL APR, be within one eighth of one percent (0.125%) from the accurate calculation of the (mathematically-untrue) NOMINAL APR. What folly! The mathematically-true, COMPOUND APR is not merely slightly over the one of those tolerance percentages from the NOMINAL APR, it is 43,590 of those tolerances, calculated as (5,983.808%-445%)/0.125%. The compound method is used in the Truth In Savings Act of 1991 and in all transactions in the United Kingdom. The method should be changed in the U.S. It would initially be the changing in the Appendix J(b)(1) the words “… multiplied … by …” to “… compounded … for …”.
Unfortunately, Republican legislators are given large campaign contributions from financial institutions, which, any human will know, influences the recipients’ propensity on legislation. Now, how you can change it? Consider the precept promulgated by Ross Perot in 1993, a computerized referendum. His was National, yours would be Missourian. Technically, the user identification should be required. How to solve that, I leave to you. I would consider “Iris identification” … better than fingerprints.”

(Report Comment)
Corey Parks January 13, 2012 | 12:24 p.m.

I am getting tired of people "helping" the military when they know nothing about the Military and how pay and benefits and other things are payed out.
ANY Soldier or wife that goes to a payday loan is not doing it because the Military is not paying them enough. They are doing it because they do not budget and spend too much on new cars and homes they can not afford. I deal with it all the time. Difference between me and other commanders is I run a small business and know finance while active duty personal for the lack of a better phrase "lack real world experience" They could not tell their troops what to do if they wanted to.
As for the targeting of Payday loans and how they target poor families. I would like to know why Mary Still does not go after Rent to own places with the same intensity. Aaron's Rental prays on more poor folk then any payday loan hopes too.

(Report Comment)
Corey Parks January 13, 2012 | 12:25 p.m.

Is AF Blair a real name? Very interesting first name if it is.

(Report Comment)
Ray Shapiro January 13, 2012 | 1:02 p.m.

Rent-to-Own's Image: Part III | By Richard May

(Report Comment)
Sun Jun I January 13, 2012 | 1:40 p.m.

A comparison between military personnel and civilian working families is apples to oranges. The federal rate cap for the military was meant to remove these lenders altogether. Military families have health care, they’re paid a livable wage, and they have access to a great many resources so that they really don’t need payday loans. This is not the case for the working poor in our state. To them, a payday loan may be the only thing that can make ends meet in a pinch.

(Report Comment)
mike mentor January 13, 2012 | 2:42 p.m.

@sun jun
Who do you think owes the working poor a cheap source of credit that as an enterprise will lose money due to the higher default rates?

(Report Comment)
John Carlisle January 13, 2012 | 3:52 p.m.

Clearly, the payday loan issue is one that stirs vigorous debate on both sides. When trying to decide which side carries the moral high ground in these types of debates, I tend to simply look at how arguments are constructed, and the soundness of the premises used to arrive at any given conclusion.

By this standard, I must say that Still has failed miserably in her attempt to persuade me that the payday lending industry is the predator she paints it to be.

Still begins by stating, "The nature of payday loans is neither forgiving nor helpful to most Missouri consumers." However, there is nothing to support this conclusion. She simply spirals into a diatribe about APR. The actual APR is irrelevant to her conclusion that these loans are not helpful. It also is irrelevant to the point of forgiveness for two reasons. First, the loan is not annualized. Rather, as everyone knows, it is a two week loan. Second, if APR WERE the determining factor in "forgiveness", Still would also be railing against $35 bank fees against a $5 overdraft. Still fails to support her conclusion that payday loans are both unforgiving and not helpful.

She also states that, "Mr. Rosman is the rare consumer who was able to pay back his loan without going too far into debt." I could write a book about the logical problems Still presents with this comment, but I'll simply point out that in order to make this sort of claim, I would expect hard data to back it up. Still provides no data, no studies, and no supporting information to justify her claim. Further, words such as "rare" and "too far" are intentionally ambiguous, thus by nature requiring very little support. It has been my experience that when ambiguous terms are used in the course of an argument, supporting premises to a conclusion are weak at best, and non-existent at worst.

Still's argument, in essence, is that payday loans should be reduced to a 36% APR because they do not bennefit Missourians, and even if they did, the current standards or those proposed to allow for a 300% APR result in the "rare" ability to repay the loan. However, when reviewing her argument, I did not see one piece of supporting evidence to draw such conclusions.

So, to my earlier point, I tend to dismiss arguments and persuasions that are steeped in emotional buzzwords, but lacking any true, real, or sunbstantive facts, evidence, or data. Perhaps this is the reason that so many of Missouri's elected state respresentatives have yet to get on board with Still's agenda. An agenda without reason is merely a crusade, and I applaud the Missouri legislature for allowing reason and logic to rule the day. I sincerely hope that it will continue to require Still to justify her claims before enacting any legislation.

It seems to me that since Still is on her third attempt at killing a service in her state, if she had any true justifications, she would have presented them by now.

(Report Comment)
Mario Sanchez January 13, 2012 | 4:23 p.m.

The only way to reach the much-hyped triple digit APR is to take out one advance and continue to renew the same advance every two weeks for an entire year. State laws and industry best practices do not allow this to happen.
I work in the industry and removing one option in today's environment will only force consumers into more expensive, less desirable and unregulated alternatives.

(Report Comment)
Pam Tate January 13, 2012 | 5:08 p.m.

I work in this industry and would like to point out that payday loans are two-week loans and cannot be offered at the same APRs as annual credit products. At a 36% APR, the total fee charged on a $100, two-week advance would be $1.38.

(Report Comment)
Corey Parks January 14, 2012 | 11:03 a.m.

What seems to be the problem with that Mrs Tate? Seems that all the business has to to do is go out and get 7000 people a week to take out a loan and it should be fine. :)

This is just another example of what happens when people keep electing others to office that do not live in the real world. No concept of business or finance.

(Report Comment)
David Winn January 16, 2012 | 1:18 p.m.

I work in the Payday loan industry and I am a member of the CFSA.

Community Financial Services Association

CFSA is the national trade association representing responsible payday lenders. With membership representing more than half of the payday advance outlets nationally, CFSA promotes laws and regulations that protect consumers while preserving their access to credit options. The association also works on behalf of members to support and encourage responsible industry practices.

We want customers to use payday advances wisely and we want the service to be a solution for those who need low-dollar, short-term credit. A payday loan may not be the best choice in every situation.
CFSA’s Best Practices ensure our member companies hold themselves to a higher standard of responsible service and help our customers make better financial decisions.
For example, CFSA members are required to display their fees in large type on posters in all store locations. CFSA members are also required to offer customers the option of an Extended Payment Plan if they cannot repay their loan when due. This is offered at no additional charge.
This is part of our ongoing effort to respond to the concerns of policymakers and protect the financial well being of our customers.

(Report Comment)
Donna Smith April 3, 2012 | 1:34 a.m.

Eliminating the loan opportunities for those that couldn't get credit from banks, unions or other 'mainstream' lending sources - drive the borrowers underground where they will resort to borrowing from unlicensed lenders with large dogs and never ending payment options. People need to borrow money, if these lenders are banned or even capped people will have to use loan sharks (thugs who will impose real physical threat upon non-repayment of 'cash' loans). I for one think short term loans through visible lending streams is fine as long as the repayments are clearly stipulated.

(Report Comment)

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