Opinion: Legislature Should Limit Payday Loan Industry

St. Louis Post-Dispatch, May 2, 2014

Opinion

By Tishaura O. Jones, Treasurer of the City of St. Louis

One of my goals as treasurer is to create programs that will help improve the quality of life for St. Louis residents. That is why I’ve made financial literacy and empowerment my mission.

Simply put, financial literacy is the ability to understand how money works. But financial literacy isn’t just about balancing your checkbook or knowing how much money you have in the bank. When you are financially empowered, you can avoid predatory lending practices like payday loans. A financially empowered person knows that legislation like Missouri Senate Bill 694 is a bad idea.

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.

The sponsors and supporters of the bill will tout that consumers will have a new option of paying off the loan through an extended payment plan. However, the lender doesn’t have to offer it to customers. Lenders can just post a couple of conspicuous signs and print a few flyers.

There is more. One of the most egregious additions to the law is it allows payday lenders who are licensed out of state but advertise on the Internet to obtain a license in Missouri to do business. This opens Pandora’s Box and allows consumers to take out multiple payday loans from different sources.

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. There should also be a statewide database, a limit to the number of payday loans a borrower can take out, and if a borrower cannot repay the loan, then they would have to undergo credit counseling. Payday loan fees should be limited to 10 percent of the loan amount. The payday lender should be limited in what they can do to obtain past due payments from clients.

However, I don’t see any of this happening, as our weak ethics laws allow special interest groups to make unlimited campaign contributions. Previous attempts to legislate this issue have been derailed.

As treasurer, I am committed to helping St. Louis residents become financially literate and learn how to confidently manage money so they can avoid using payday loans. Long-term planning of our financial futures will in turn leave a legacy to our children so they will be protected for years to come.

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