A proposed overhaul of Missouri's payday loan regulations in the General Assembly is a poorly disguised effort to benefit a rich and powerful industry that preys on the poor and powerless.
The legislation, which passed easily out of the Senate last month on its way to the House, would prohibit a borrower from renewing a short-term payday loan. Current law allows such a loan to be renewed up to six times.
But, in a nice turn for the payday lenders, it removes any ceiling on interest charged. Its sponsor, Sen. Mike Cunningham, R-Rogersville, says the interest cap is unnecessary if loans cannot be rolled over.
It all sounds logical — until you add up the realities. Current law caps interest and fees at 75 percent of the loan, which is also limited to $500 and can run only 14-31 days. That translates into an annual interest rate of 1,950 percent for a 14-day loan. Despite already being able to charge interest rates that would make Shylock blush, under Senate Bill 694, the sky's the limit.
Outlawing rollovers does not really stop borrowers from extending a loan over and over again, eventually owing thousands of times the original amount. With lenders willing to simply make a second loan immediately after paying off the first one (or, based on proudly displayed signs throughout Springfield, another lender happily doing that for a borrower), the new law would effectively remove the existing six rollover limit.
While the bill is presented as a way to reform the current payday loan laws and protect the consumer, it does neither. Instead, it gives this predatory industry what it wants — free rein to rake in outrageous profits.
Consider this: In 2012, there were 934 licensed payday loan lenders in Missouri, with a cap that is among the highest in the country. They made 2.34 million loans (in a state with about 6 million people), with an average value of $306 and an average interest rate of 455 percent. This industry has every reason to protect its multibillion-dollar income.
The payday loan industry has been uncharacteristically quiet about this effort at "reform." But it has not ignored all such efforts. In fact, in 2012 the industry spent $2 million to fight a successful grass-roots petition drive that would have put true reform on the ballot.
Missourians for Responsible Lending collected more than 350,000 signatures for a ballot referendum that would have asked voters to put a 36 percent annual interest rate on the loans. That is the same cap the Military Lending Act imposes on payday, auto, tax-refund and other short-term loans made to members of the armed forces.
The industry — using such misleading names as Missourians for Equal Credit and Stand Up Missouri — cried foul, claiming such a law would destroy their lending business and prevent people who genuinely need a small, short-term loan from receiving one.
With billions in profits on the line, they were ready to spend what it took to stop an effort that was gaining widespread support among voters throughout the state. They succeeded by dragging the petitions through court until the $600,000 raised by Missourians for Responsible Lending was spent and time had run out.
Missourians for Responsible Lending is ready to try again. The group's initiative petition has been approved, and signatures will soon be collected.
Expect those friendly loan sharks to once again spend whatever it takes to stop them. It will likely be more than it took to get a friendly bill passed in the Senate that would actually make real reform more difficult.
The House, however, can stop this. Our representatives should refuse to be part of this subterfuge.
Instead, the legislature should consider outlawing or strictly regulating payday loans as 11 other states have done.
Copyright Springfield News-Leader. Reprinted with permission.