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In Missouri, home of some of the most relaxed consumer lending laws in the nation, the payday loan industry has been shrinking for years.

After the Legislature changed the state’s usury laws to allow high-interest, short term loans in the 1990s, storefronts began popping up across the state. By 2005, there were 1,335 licensed lenders operating.

Today, there are 653. The 1.62 million loans taken out last year, according to a recent state survey, was a little more than half of what it was 10 years before.

Part of that decline is simply a shift to different types of loans. Many payday lenders haven’t closed — they now focus on installment loans. Rather than a two-week, lump-sum payment period (which may be rolled over as many as six times), installment loans are paid back in chunks over four or more months, but can still carry triple-digit annual interest. The number of installment lenders (many of which still offer payday loans) more than tripled from 2005-2013, to 976.

But that growth stalled, and in 2016, several dozen installment lenders didn’t renew licenses. Most lenders are private, so overall industry profits are difficult to track. But according to the annual financial reports installment lenders are required to file with the state, some of the largest lending chains are either treading water or closing stores as their revenues drop.

It’s unclear to what degree Missourians are taking on fewer risky loans, or if they’re simply shifting to other forms of subprime credit.

“There’s a perception companies are making money hand over fist,” said Al Leving, who stopped offering payday loans at his the Loan Machine stores years ago but still sits on the board of the United Payday Lenders of Missouri. “Many people have closed stores in recent years because the business has not been profitable.”

Driven out

by competition

or regulation?

There are a variety of factors contributing to the struggles of brick-and-mortar short-term lenders.

It’s possible there was an overextension that occurred as the payday loan industry exploded in the early 2000s, leading to an oversupply of stores. The recession likely put many smaller lenders out of business. And the growing availability of products such as online installment loans and subprime credit cards has taken away some of the market. The number of online-only licensed lenders in the state has tripled since 2012, to 197.

“I think the story is more market-driven than regulatory driven,” said Alex Horowitz, a Pew Charitable Trusts researcher who studies small dollar loans.

Lenders interviewed by the Post-Dispatch, on the other hand, were quick to blame federal regulators.

Rules proposed last year by the Consumer Financial Protection Bureau last year, they argue, will add to their costs, reduce their customer base and put most of them out of business. The proposed rules would require lenders to assess a borrower’s ability to repay, implement income verification measures, limit loan rollovers, and provide more disclosures related to payments.

Seeing the writing on the wall, chains have closed struggling stores, Leving said. A spokesman for one of the nation’s largest payday lenders, Advance America, said it shuttered several Missouri locations last year. State records indicate some small lenders that had only one or a handful of locations are no longer operating. Transitioning from payday to installment loans — which must be at least $500, under Missouri law — requires having more capital on hand, Horowitz said, a transition that some smaller lenders might struggle with.

Many companies that focus on high-interest short term loans, particularly those who rely heavily on payday loan profits, have had credit ratings downgraded, in part due to the industry’s gloomy regulatory outlook. It’s unclear when the rules, which have received fierce opposition from lenders, will be implemented, or whether they’ll be revised. President Donald Trump has been critical of the CFPB, and many lenders are hopeful that the new administration or Congress will prevent the rules from taking effect.

The CFPB, however, has more independence than other agencies, and its director, Richard Cordray, an Obama appointee, can only be removed for cause. Cordray’s term expires in July 2018. Earlier this month, U.S. Department of Justice, under the direction of the Trump administration, argued in court that the agency’s structure is constitutional and that Trump should have be able to remove Cordray.

“The people I’ve talked to were very relieved when Trump won the election,” said Roy Hutcheson, an Alabama businessman who operates 49 Title Cash of Missouri stores.

He said business in Missouri suffered less than in other states. According to filings with the state, his revenue from payday and installment loans dropped from $12.8 million in 2013 to $11.2 million in 2015, the most recent year available. Charge-offs rose by more than 20 percent, to $2.8 million, and the business turned a profit of $400,000 before taxes, according to the filings.

“We’ve been in decline for four years,” he said. Some of it is due to regulations and competition from online lenders, he said, and some of it was because his customers hadn’t recovered from the recession. “Everybody’s been telling us (the economy) has been getting better,” he said, “but I don’t see the results.”

Like other lenders interviewed, Hutcheson said that in some instances banks, under pressure from the Justice Department, have cut off relationships with his stores. In some areas, he said, he can’t find a bank, so his employees go to Walmart and use cash to get a money order, which they scan and send to a bank in Alabama to be deposited.

One of the nation’s largest title lending chains, TitleMax, has also seen loan volume and revenue decline in Missouri; it has closed several stores. The company’s profit dropped from $16 million before taxes in 2014 to $14 million in 2015, the most recent year a state filing was available. Its loan volume fell from $55 million to $50.6 million, and the number of cars it repossessed in the state dropped from 8,960 to 8,137. The company didn’t respond to an interview request.

The state’s largest payday lender, QC Holdings, of Overland Park, Kan., saw its operating income in Missouri drop from $54 million in 2013 to $37 million in 2015, according to state filings. It voluntarily delisted from the Nasdaq exchange to save money on compliance costs.

According to 2016 filing, nationwide, QC lost $5.1 million through the first nine months of the year, partly due to one-time expenses including the cost of closing stores in several states and a legal settlement. In previous filings, the company attributed flagging revenue to regulatory pressure and increased competition, including from online lenders. The company referred an interview request to an industry trade group, which declined to answer questions about a specific company.

What’s next?

Consumer advocates have long argued that payday lenders take advantage of vulnerable customers and that their business models depend on customers repeatedly renewing loans — thus racking up more interest and fees — before repaying. While some advocates may cheer the industry’s struggles, it’s unclear how a continued shift away from payday loans could affect cash-strapped borrowers.

Online loan products tend to be more expensive than identically structured in-person loans, and while installment loans may give the borrower more time to repay, they can still carry high interest and fees over time.

Ed Groshans, an analyst at Height Analytics, said many current payday borrowers couldn’t qualify for a loan if the current CFPB proposal was implemented. Nor do they qualify for less expensive alternatives, he said, like a personal loan from a credit union.

“I’m not a fan of the payday lending industry, but I’m not a fan of just lopping it off,” Groshans said. “The industry wouldn’t exist if there wasn’t a need.”

Walker Moskop is a data specialist and reporter for the St. Louis Post-Dispatch.