JEFFERSON CITY • People getting a payday loan would be offered extended payment plans and barred from renewing such loans under a bill endorsed by the Senate Wednesday.
Bill sponsor Sen. Mike Cunningham, R-Rogersville, said the bill would help keep people from getting trapped in a never-ending cycle of debt. While some senators said they didn’t think the bill went far enough, they said it was a step in the right direction.
“I do think in many cases it will prevent the cycle of debt,” said Sen. Scott Sifton, D-St. Louis County. He said the extended payment plans lenders must offer would benefit them but that consumers needed to be informed about the option.
The bill requires payday lenders to display that they offer repayment plans over 60 or 120 days with due dates coinciding with expected paychecks. No additional interest or fees could be charged during that time. Borrowers would only be able to get one of these deals in a year.
Missouri currently caps interest and fees on a loan at 75 percent of the original principal and payday loans can last for between 14 and 31 days. That would allow a lender to charge $75 on a $100 loan over 14 days – an interest rate over 1,950 percent. The average interest rate of payday loans in Missouri was 454 percent from 2011 to 2012, according to a report by the state’s finance division.
The bill removes the $75 per $100 dollar cap. Cunningham said that was because it was no longer necessary because of the renewal ban and extended payment plan. “Competition should dictate the fees,” he said.
Under the current law, short term loans can be renewed or “rolled over” up to six times and interest can continue to accumulate. Critics of the payday loan industry argue that these renewals trap low-income people into a cycle of debt and end up costing them too much in fees and interest.
The bill bans renewals or rollovers of payday loans.
But Barbara Paulus, who leads the Economic Task Force for the Metropolitan Congregations United in St. Louis, said the legislation does nothing to help those targeted by payday lenders. She said the rollover ban had done little in other states and consumers would still be able to take out back-to-back loans.
“Even though they’re not calling it a rollover, if you’re taking out nine loans a year it’s basically the same thing,” Paulus said.
Few consumers utilize extended repayment plans that are required by law, according to the Center for Responsible Lending. In Washington State, only 15 percent of eligible loans were repaid under the extended plan mandated there. Paulus said payday lenders had an incentive not to have people use an extended plan.
“They make their money by taking advantage of people,” Paulus said.
Paulus said the only way to fix the problem would be to cap interest rates at 36 percent. A ballot initiative supported by her organization and other community groups failed to gather enough signatures to get on the ballot in 2012. Paulus said there’s no plan to try to get it onto the 2014 ballot but said, “We’re not finished.”
Sen. Ed Emery, R-Lamar, said while it’s not the government’s responsibility to force people to make good decisions, the law would increase the information available to consumers.
“I do believe it’s the government’s responsibility to promote transparency so that people have at least the opportunity to be informed,” Emery said. “There are people who have a need for these kinds of loans but when we’re desperate we have a tendency to do things that we wouldn’t if we weren’t desperate.”
The bill will have another vote in the Senate before moving to the House for consideration.
(The bill is SB 694.)