Critics: Reform payday loans industry

September 20, 2007

Attorney General Jay Nixon, clergy leaders, and several Democratic legislators on Tuesday called for reforms of Missouri's payday loans industry, saying it is profiting on the backs of the state's most vulnerable people.
The group called for legislation to hold the industry accountable, noting that Missouri has some of the most lenient payday loan laws in the nation.
They want to cap payday loan interest rates at 36 percent and eliminate the practice of renewing loans, which they say is prohibited in other states.
They also want to authorize the attorney general's office to punish lenders who violate the law. Currently, the Missouri Division of Finance regulates payday lenders and the attorney general's office can take action only on referrals from the division.
Reform legislation will be offered in the next legislative session; two earlier efforts have been blocked by Republican leadership, they said.
Sen. Rita Days, D-St. Louis, said she's not trying to put the payday loan industry out of business; she just wants to establish parameters.
"It's legal loan sharking," said the Rev. Douglas Parham, president of the St. Louis Metropolitan Clergy Coalition. "The only difference is they don't take a sledgehammer to break your knees."
Nixon said borrowers of payday loans in Missouri pay an average of 422 percent APR -- the annual percentage rate representing the cost of credit to the consumer -- but that some are charged as much as 1,950 percent APR.
Citing figures from the Missouri Division of Finance, Nixon said nearly 3 million payday loans were issued last year and the number of new loan licenses has increased by 69 percent since 2003.
Nixon said Missouri families paid $317 million in fees and interest in 2005 alone, second in actual dollars only to the state of California.
Nixon's appearance Tuesday was as a Democratic gubernatorial candidate, a campaign spokesman said. In a news release, Nixon challenged Gov. Matt Blunt to join in supporting the reform legislation.
Messages left for a spokeswoman for Blunt, and for Sen. Delbert Scott, R-Lowry City, chairman of the Senate Financial Governmental Organizations and Elections Committee, were not immediately returned. Senate President Pro Tem Michael Gibbons was on vacation and unavailable, his spokeswoman said.
The Federal Trade Commission advises consumers to borrow only as much as they can afford to pay with the next paycheck and still have enough to make it to the next paycheck.

The FTC advises consumers to consider other options before choosing a payday loan, such as a small loan from a credit union or small loan company, a pay advance from an employer, or a loan from family or friends.

Resources: http://www.businessweek.com/ap/financialnews/D8RO35C01.htm