Today the Missouri House Financial Institutions Committee passed a bill that purports to regulate payday lending in several ways – some of which appear to be beneficial to consumers. However, HB 2657 currently lacks the real regulatory changes the state of Missouri needs to protect its citizens. In fact, passage of this bill leaves Missouri far behind the regulation of all of our surrounding states.
First, and foremost the bill modestly reduces interest limits from 75% to 35%. While this appears to be beneficial, this rate is still 2.3 times higher than the rate cap of all surrounding states. Kansas, Iowa, Tennessee, Kentucky, Nebraska, Illinois, and Oklahoma all cap their rates at 15%. A 35% interest rate on a two –week loan translates into a whopping 910% APR, no nowhere near the generally accepted preferred APR cap of 36%.
Secondly, the bill reduces the number of renewals from six to two. While this gives the appearance of protecting consumers, there is no rationale for allowing them at all. All of our neighboring states do not allow renewals of any number.
To add insult to injury, HB 265 reduces the fee for payday lending licensing from $500 to $300. We fail to see a reason that could justify this reduction. The fee for licensing is relatively small compared to the income generated by these lenders and the fee helps pay for oversight of the industry and a state annual report that provides valuable insight into the impacts of payday lending on Missouri households.
Finally, we’d like to applaud changes to extended payment plans, but would like to point out that this will have very little impact on consumers. States with similar provisions report that less than 3% of eligible transactions actually utilize the extended payment plan.
Payday lending has a major impact on the state of Missouri. The most recent report on payday lending shows that 1.62 million payday loans were issued in 2016 which means on average 1 in 4 Missourians took out a payday loan. The average loan was $314.93 and carried an average interest rate of 462.87%. Assuming they are all paid off in two weeks, at least $90 million in interest and fees are leaving our state’s poorest household and being collected largely by out of state banks annually. This is tragic not only for Missouri families but terrible for our state’s economy.
While we are grateful that the Missouri House is hearing a bill on such an important topic, this bill will do very little to address the impacts it has. We are writing to encourage the Rules Committee to reject this bill in favor of additional dialog prior to the passage of any regulatory bill, include consumer advocates in the discussion and work on reform that will have meaningful impact on Missouri families.