AG Nixon backing reform for 'thriving' payday loan business

ST. LOUIS -- Attorney General Jay Nixon called for reform to the payday loan industry in Missouri on Wednesday, citing a new report saying the businesses charged annual percentage rates of more than 400 percent on average.

The businesses offer consumers short-term loans until the borrower's next paycheck. But Nixon said those who take out payday loans "can easily get themselves into a hole they can never dig out of."

The Missouri Division of Finance's report found the number of payday loans has increased in recent years. The division issues its findings on payday loans every two years.

The most recent survey, which covered Oct. 1, 2003, through Sept. 30, 2004, noted that payday loans had increased 30 percent from the division's previous report, which was released in January 2003.

The survey also said that between Oct. 1, 2003, and Sept. 30, 2004, Missouri residents borrowed $626 million from payday lenders.

The division said it received about 350 complaints related to payday loans during that time.

"Most of these were from citizens who, after taking out the loan, saw the triple digit APR and believed the rate to be unlawful," the division's report said.

In most cases, the high APRs are legal under state law, which also allows up to six renewals on payday loans.

"The payday loan industry in Missouri is thriving, but it is doing so at the expense of cash-strapped Missourians who have run out of options to pay their rent, utilities or purchase food," Nixon said in a statement.

Offering options

A group that represents about 60 percent of payday lenders doesn't see it that way.

"We're offering them options to avoid having their utilities cut off, an option to avoid a bounced check fee," said spokesman Steven Schlein with the Community Financial Services Association in Alexandria, Va.

Nixon said he supports a bill sponsored by Rep. John Burnett, of Kansas City, Mo., that would limit the interest and fees charged on loans to 1.5 times the highest interest rate credit card companies can charge.

The bill also would:

* prohibit renewals of loans to circumvent rate restrictions;

* allow the Attorney General to issue cease and desist orders against violators and to sue for injunctions, restitution and civil penalties;

* and make it clear that limitations apply to all lenders, whether or not they are properly licensed.

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On the Net:

http://www.missouri-finance.org