Woman Borrows $100, Pays Back $3,592; Judges Rule Legal Under Missouri Law

St. Louis Post-Dispatch, July 13, 2015

Erica Hollins borrowed $100 in 2006 at the Loan Express store on Olive Street downtown. By 2011, she had paid back $3,592, garnished from her wages at a nursing and retirement home.

She might still be paying today had she not found a lawyer to try to stop it.

She wasn’t — and isn’t — the only one in that fix. Other people who borrow small amounts in St. Louis end up paying 50 and 60 times the original amount borrowed through wage garnishments.

One poor fellow borrowed $80 and ended up owing about $25,000, according to court filings.

Holding their noses, judges of the Missouri Court of Appeals last month ruled that the big garnishment against Hollins was legal under state law.

The result “seems egregious and would likely shock the conscience of the average person,” wrote Presiding Judge Kurt Odenwald, who said the judges were “very sympathetic” to Hollins.

The case shows the “inherent injustice in these lending arrangements,” wrote Judge Robert Dowd Jr. He called it a “clear example of predatory lending.”

In other words, shockingly egregious predatory injustice is allowed under Missouri law, and judges must uphold it.

Here’s how these things happen. Hollins borrowed $100, agreeing to pay it back in five monthly payments of $31, totaling $155. As it says on the loan contract, that’s an annual interest rate of 199.7 percent.

She made the first payment, knocking the principal down a bit, but never made the other four. So some of this mess is Hollins’ fault, as the judges noted.

“She had every opportunity to pay it off,” noted Michelle Drake, the lawyer representing Loan Express. In court documents, Loan Express said it made 50 attempts to contact Hollins by phone and mail over 15 months in 2006 and 2007.

It’s not worth suing over a small debt. But the clock kept running on the interest. At 199 percent, that adds up fast. By June 2009, the debt was at $729. Loan Express tacked on a late fee and other charges and sued Hollins for $924.

Hollins didn’t show up in court. In depositions, she said she never learned of the suit. A St. Louis County judge entered a judgment, and a garnishment against her wages.

An odd thing happens in such cases. A garnishment can only take so much from a person’s pay. With interest running at 199 percent, the garnishment sometimes isn’t enough to cover the rapidly compounding interest. So the debt gets bigger even as the debtor pays and pays.

In effect, the debtor becomes a bound servant of the lender, paying in perpetuity, with courts cracking the whip. “You’ll never pay it off. They’ll garnish you for the rest of your life,” said Rob Swearingen, an attorney with Legal Services of Eastern Missouri, a nonprofit group that represents poor people.

Garnishments in Missouri can take 25 percent of a single person’s wages, and 10 percent from someone with dependents.

In court filings, Hollins lawyer lists other such cases involving Loan Express and its owner, Capital Solutions Investments.

A sampling:

• S.S. borrowed $80. Capital Solutions got a judgment for $2,137. By the time the case was filed, $5,346 had been collected, and a balance of $19,643 remained.

• D.W. took out a $100 loan. A judgment was entered for $705.18. The garnishment yielded $3,174, and a balance of $4,105 remained.

• C.R. borrowed $155. Capital Solutions sued for $1,686.93. They had collected $9,566 and C.R. still owed $2,162.07.

For such borrowers, the only way out may be bankruptcy. But filing bankruptcy costs money.

Can such big collections on small debts be justified? Drake noted that such loans go to high-risk borrowers and high interest rates reflect the risk that the borrowers won’t pay. The Legislature allows interest rates that reflect that risk, she said.

I couldn’t reach Todd Stimson, president of Capital Solutions and Loan Express, who describes himself on his website as a “self-made millionaire.” In a 2013 interview with ProPublica, the investigative journalism group, Stimson said he has to file such suits or “word gets out in the neighborhood, ‘Oh, you won’t get sued anyway, just don’t pay them.’”

Consumer groups attack payday loan shops as high-interest ripoffs. But there are actually more protections for payday loan borrowers than for the type of loan that Hollins received.

Payday loans are limited to 30 days, although most are for two weeks. They can be renewed, but interest and fees on a single loan can never exceed 75 percent. (Consumerists say there are ways to get around that limit.)

Hollins borrowed under the state’s consumer installment loan statute. That governs loans of 120 days or more, and there are no interest limits.

That troubles Judge Dowd. “The debtor in these types of situations has absolutely zero power to negotiate a reasonable interest rate; instead, such debtors will pay whatever amount the lender decides to charge,” he wrote.

The number of payday loan shops has been dropping in Missouri, while the number of installment loan operations has been growing. Among Swearingen’s poor clients in debt trouble, he finds a clear trend away from payday loans and toward installment loans.

Loan Express waited two years to sue Hollins, and Swearingen says that’s typical in small-dollar installment loan cases. “They want the principal and interest to accumulate to the point where it will be profitable over the long run,” he said.

Hollins’ problems can be traced back to an expose published in 1989 in the Post-Dispatch. The story showed how loan shops in St. Louis were charging 200 percent interest and more on small loans, and told of consumers being driven into bankruptcy. At the time, state law limited small-loan interest to 26 percent.

The Legislature jumped into action — and abolished the 26 percent limit.

For a while, the state banking commissioner was allowed to set a higher limit. But in 2001 even that limit was lifted. Small-dollar installment lenders were let loose.

Hollins found a lawyer in 2011. The lawyer, Alicia Campbell, filed a class-action suit against Capital Solutions, owner of Loan Express, demanding relief for everybody in Campbell’s situation. A deposition in the court case indicated that Capital Solutions was suing people at a rate of 75 per year and had 350 suits on record.

With the law against her, Campbell threw up various technical objections to the judgment. The court generally struck them down. Hollins’ case was hobbled because no one raised such objections at the original trial, and by the fact that she waited two years to appeal, missing a crucial deadline.

Of course, the typical loan shop customer doesn’t know how to defend a lawsuit and can’t afford a lawyer.

Dowd would have agreed with one contention — that the clock on interest stops after the initial default, and interest doesn’t start accumulating again until the lender gets a court judgment. Drake disagrees, and says courts have never really settled that issue.

However, even Dowd ruled against Hollins because of the delay in raising such issues.

One good came out of the lawsuit. Capital Solutions dropped its garnishment against Hollins after the suit was filed in 2011, Drake said.

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