A Phony Payday Loan Reform Bill. Because 1,950 Percent Is Not Enough
St. Louis Post-Dispatch, March 5, 2014
When a payday lending “reform” bill sails through the Missouri Senate and the payday lending industry doesn’t scream bloody murder, you can be sure of two things:
One, it’s not really a reform. And two, the working poor are going to take it in the shorts. Again.
Seriously, how much more do these guys want? Already the average payday loan in Missouri is for $306 and carries an annual percentage rate of 455 percent. State law allows the industry to charge interest and fees of as much as 75 percent of the loan’s principal. Borrow $200 and pay back $350, and you’re looking at an APR of 1,950 percent.
That’s not enough?
Well, no. The industry and its lobbyists spread more than $1.6 million on state lawmakers’ campaigns between 2003 and 2012, and the spigot is still on. Last year just two payday companies — QC Holdings and Advance America — contributed $83,600 to various Missouri legislators and party committees. Remember, 2013 wasn’t an election year.
The sponsor of the “reform bill” (Senate Bill 694) that passed the Senate last month, Republican Mike Cunningham of Rogersville, got $2,500 from QC Holdings; he doesn’t run for re-election until 2016.
The big “reform” in the reform bill would prohibit payday lenders from renewing (or “rolling over”) loans, which currently can be done up to six times. Borrowers would instead be eligible for an extended payment plan of up to 120 days. But here’s the beautiful part: The lenders wouldn’t actually have to tell the borrower about the extended payment plan as long as there was a sign on the wall and some brochures lying around.
Also, there’s nothing to prevent a lender from closing out one loan and opening another. Instead of rolling over a loan, the lender can roll it into a new loan. Easy-peasy.
Here’s the even more beautiful part: In return for accepting these onerous “reforms,” payday lenders would no longer be limited to charging a mere 75 percent of the principal in loans and fees. They could charge as much as they want. Borrow $200, pay back $500, $600. Whatever.
People get desperate to keep the lights on or get a water pump repaired so they can get to work, they’ll sign just about anything.
In 2006, then-U.S. Sen. Jim Talent and U.S. Rep. Sam Graves, both Missouri Republicans, co-sponsored an amendment to the 2007 Defense Authorization Bill that was signed into law by President George W. Bush.
The amendment was designed to protect members of the U.S. military from predatory lenders by capping interest rates at an annual rate of 36 percent.
What happened was that payday companies closed up most of their shops outside of military bases, as they did in the 17 states that have imposed 36 percent-or-lower payday loan rates. Instead they opened more stores in states like Missouri.
But soldiers, sailors and residents of those 17 states sometimes need short-term loans. Some lenders have found it possible to make a solid profit lending at a mere 36 percent, enforcing better financial habits on their customers.
Indeed, the Inspector General of the United States Postal Service has proposed putting the post office into the “alternative banking” business. People who deposit their paychecks with the Postal Service would be allowed to take out short-term loans at 28 percent. The post office could wipe out its own debt — and so could its borrowers.
In short, there are real reforms possible in short-term lending. A measure imposing a 36 percent cap could be on the November ballot in Missouri, unless the payday industry subverts it, as happened in 2012.
That so many Missouri lawmakers continue to sell themselves like cheap hookers — OK, expensive hookers — to the payday lending industry is a pox on the entire state. Having read the campaign finance reports, we have little hope that the Missouri House will have the integrity to say no to the Senate’s phony reform bill.
We hope we’re wrong, but in the event it passes, Gov. Jay Nixon must veto it. Someone in Jefferson City should have a little pride.
Weak Payday Loan Bill Would Inhibit Reform in Missouri
The Kansas City Star, February 26, 2014
Contrary to what its backers contend, a bill that sped through the Missouri Senate does almost nothing to protect consumers who resort to payday loans.
Short-term lenders, on the other hand, would benefit considerably from its final passage.
Sponsored by Sen. Mike Cunningham, a Rogersville Republican, Senate Bill 694 bans rollovers — loan renewals accompanied by accumulating interest and fees. Current law permits six rollovers a year. The proposal also requires lenders to offer each borrower once a year an extended payment plan with no additional interest or fees.
Perhaps deliberately, the rollover ban and the extended pay period ignore a central reality of payday lending: The business depends on repeat customers. A report last year by the federal Consumer Financial Protection Bureau found that almost 90 percent of storefront payday loans go to borrowers with seven or more transactions a year.
As is done in other states, lenders in Missouri could adroitly sidestep a rollover ban by having borrowers pay off one loan and immediately take out another. For the chronic payday consumer, a once-a-year extended pay period would provide only a short breather from mounting debt.
In exchange for the appearance of being reined in, lenders would receive something they want: removal of the provision in state law that caps interest and fees at 75 percent of the loan’s original principal.
The current cap amounts to a ridiculously high annual interest rate of more than 1,950 percent and helps to explain why the average annual percentage rate on a payday loan in Missouri is 454 percent, more than 100 percentage points higher than the national average.
Honest reform would lower the annual rate of interest that could be accrued on a loan, not remove even the flimsiest of restrictions.
Records at the Missouri Ethics Commission show three payday loan companies donated a total of $3,000 to Cunningham’s campaign committee at the end of last year. When he filed his bill early this session, the famously vigilant industry offered no significant protest.
The Missouri House should reject the measure just passed by the Senate. It is a gift to the industry disguised as reform, and its passage would make genuine protections much harder to obtain.
Time for Real Loan Reform
Springfield News-Leader, March 2, 2014
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.
MRL 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.
Missouri Lawmakers Crack Down on Payday Loans by…Eliminating Caps on Interest and Fees?
Fake reform for the payday industry in Missouri.
The Pitch, March 3, 2014
The notoriously despicable payday lending lobby in Missouri has a rich history of savagely fighting any proposed legislation that might eat into the industry’s absurd profit margins. Very surprising, then, that a payday loan reform bill sailed through the Missouri Senate last week.
By “surprising,” I mean, of course, “not surprising at all” because the bill, SB 694, is a not-especially-stealthy Trojan Horse for payday lenders in the state.
It sounds like a good deal at first: The bill would prohibit lenders from extending “rollovers” to borrowers. Rolling over a loan allows borrowers to delay paying off their principal at the expense of accruing the kind of interest and late fees that trap borrowers in cycles of debt.
But that’s an easy fence for lenders to hop. Instead of rolling over loans, they’ll just issue borrowers another loan. So now Borrower X has multiple loans to manage. Oh, and also? Under the proposed legislation, there will no longer be a cap on the interest rate that payday lenders can charge Borrower X for those loans. The previous cap – 75 percent of the principal, which amounts to 1,950 percent APR on a 14-day loan – was a regulation apparently too onerous for the industry.
Given that the payday loan industry has essentially bought off most Missouri legislators – as of 2012, it had spent “more than $1 million over the last decade to influence Missouri state elections…lobbyists and lobbying firms working for the industry have given at least another $648,460 to state campaigns,” according to this report – the success of this fake reform hardly comes as a surprise. The bill now heads to the House. Maybe contact your local representative if you have any concerns about this?