Yesterday, the Missouri State Legislature voted to pass a bill pushed by the payday loan industry that offers no actual relief for communities afflicted by predatory triple-digit interest rates.
Call it anything but reform. The average rate on a payday loan in Missouri is 455% APR,. SB 694 does nothing to change that, and instead still permits loans as high 900% APR. This bill does as much good as throwing a drowning person a towel.
Until the legislature does something to actually confront the out of control fees and interest rates that payday lenders are charging, little will change for the thousands of Missourians and millions of local dollars that are trapped in needless, artificially high debt traps.
Payday lenders make these high cost loans them without any regard to a borrowers’ ability to repay the loan in light of their other outstanding expenses or debt. Instead of underwriting, payday lenders stick their claws in borrowers pockets (and don’t let go) by requiring direct access to the borrower’s bank account. This puts them first in line on payday, taking priority above all other expenses such as rent, groceries, utility bills. SB 694 allows this to happen every payday of the year with no end in sight.
Unchecked predatory lending, as SB 964 will allow, drains money from our local economies, but worse, it drains dignity from the working poor. The financial, psychological, and familial toll is far too high.
How we make our money matters. Exploiting the vulnerable is wrong. Our faith traditions are very clear: it is immoral to charge triple-digit interest on consumer loans, and it is immoral to write them into law.
We urge the legislature to perfect the bill with an interest rate cap of 36%, like Congress recently did for the armed forces. Importantly, in making the recommendation to cap the rate for payday loans at 36%, the U.S. Department of Defense noted that renewal or rollover bans are “consumer protection bells and whistles” that do nothing to stop the debt trap.
The legislature must do better than the sham provisions in SB 694 to protect Missouri’s families.
Some quick facts on payday loans:
- SB694 would allow interest rates as high as 900% APR
- There are more payday loan shops in Missouri than there are McDonald’s and Starbucks combined.
- Payday lenders prey upon people at their weakest moments. They especially target the disabled and elderly.
- The product is designed for people to fail: 90% of payday revenue comes from trapped borrowers.
Every major paper in Missouri is coming out against the bill:
Others are weighing in too:
Barbara Paulus, who leads the Economic Task Force for the Metropolitan Congregations United in St. Louis, said the legislation is sham reform and does nothing to help consumers. She said the rollover ban had done little in other states and consumers would still be able to take out back-to-back loans. “Even though they’re not calling it a rollover, if you’re taking out nine loans a year it’s basically the same thing,” Paulus said.
Rep. Gina Mitten, D-Richmond Heights, compared it to check kiting, where bad checks from one account are used to inflate another account. “I end up in another extended payment plan, then another payday loan with another lender, until I have six different loans from six different payday loan companies – none of whom I can pay,” Mitten said. “That’s the fundamental issue.”
Unlike other forms of lending, the lender has no obligation to check or share with other lenders how much the borrower is already in debt, opponents said. Sen. John Lamping, R-Ladue, said the possibility of multiple loans with multiple vendors was a serious concern.
Sen. John Lamping, a Ladue Republican, said the bill wasn’t reform and was driven by the payday loan industry.
“The bill is a wolf in sheep’s clothing that will keep people trapped in debt and moving into bankruptcy to the detriment of all of us,” said Rep. Jill Schupp, D-Creve Coeur.
But opponents said the problem lies in the short-term loan industry, itself. “The business model for the payday loan industry is one that intentionally traps borrowers in this cycle of debt– that’s how they make their money,” said Barbara Paulus from Metropolitan Congregations United in St. Louis. Paulus said the bill would do more harm than good. “Even though this current bill would outlaw rollovers, nothing would prevent a borrow from simply taking out a back to back loan,” she said.
“SB 694 is like putting lipstick on a pig in that it doesn’t really reform the payday loan industry. SB 694 allows lenders to increase their collection fees by adding the cost of returned checks. Even though it prohibits rolling over a loan several times, it does not prevent the lender from cancelling out or closing one loan and opening a new one…. Real reform would be getting rid of the payday loan industry altogether, but since that is unlikely to happen, the next best solution would be to cap the loan interest rates at 36 percent, which is still incredibly high.”