JEFFERSON CITY, Mo. -- Payday lenders would face a fresh set of restrictions, including a ceiling on interest rates, under legislation considered Monday by a Senate committee.
A state law enacted last year requires such lenders to post their annual interest rates and limits the fee on a given loan to $50 or 5 percent, whichever is less. But that legislation did not cap interest rates.
The businesses make short-term loans meant to tide people over to their next paychecks. They typically charge 15 percent interest -- which can roll over repeatedly for two weeks at a time if the borrower fails to pay the loan off.
400 percent interest
In some cases, the compounded interest can reach 400 percent, Sen. Harry Wiggins said Monday.
Wiggins and Sen. Ronnie DePasco, both Democrats from Kansas City, have proposed to limit interest rates to 15 percent for the first month and a compounded monthly rate of 3 percent after that.
The legislation would also make it illegal for payday lenders to have more than two loans to a single borrower outstanding at any time or to lend someone money to make payments on an earlier loan.
Prosecutors and courts would be barred from enforcing loans that did not comply with the legislation.
"There are times when people ... need a little cash. There's no effort to stop that. The effort is to control the unbelievable interest rates," Wiggins told the Senate Financial and Organizational, Veterans Affairs and Elections Committee.
The committee did not vote on the bill.
Opponents said capping interest rates would force payday loan companies out of business.
Mark Rhoads, an industry lobbyist, said high interest rates help pay for those borrowers who default.