Lawmakers considering payday loan changes

JEFFERSON CITY, Mo. -- A proposed overhaul of Missouri's loan industry would give borrowers more time to pay but could allow lenders to charge higher fees and interest.

The state Senate sent legislation to the House last week that would prohibit a borrower from renewing a payday loan. Under current law, a loan can be rolled over up to six times.

"Doing that got people into a trap of refinancing a loan, and it turned into a trap of economic slavery," said Sen. Bob Dixon. R-Springfield.

In Missouri, a payday loan can be no larger than $500 and can run only from 14 to 31 days.

The legislation, which senators passed 20-13, also would give buyers more time to a pay off a loan and lenders wouldn't be able to charge additional fees or interest during that period, which could last up to 120 days.

But it would be the borrower's responsibility for taking advantage of the no-penalty extended payment period. Lenders would be required only to provide brochures and notices about the plan's availability, but it would be up to the borrower to invoke the option before the loan's maturity.

The Center for Responsible Lending says extended payment plans aren't an adequate solution because few borrowers take advantage of them.

Under the measure, a borrower is allowed to use the extended payment option with an individual lender only once a year, which some opponents said wouldn't help people escape being in debt.

Sen. Scott Sifton, D-St. Louis, said he was concerned about people who got loans from multiple lenders, which could perpetuate debt. But Sen. Ed Emery said that wasn't a problem for the Legislature.

"I don't believe it's the government's responsibility to make every one of my bad decisions turn out right," said Emery, R-Lamar.

The legislation also would remove the state's 75 percent cap on interest and fees for payday loans. Under the current cap, lenders can charge $75 on a $100 loan, which leads to an annual interest rate of more than 1,950 percent for a 14-day loan.

Sponsoring Sen. Mike Cunningham, R-Rogersville, said the cap isn't necessary since loans could not roll over. He said competition and market forces would dictate the amount of fees lenders can charge.

Other senators said the legislation didn't go far enough to regulate payday loans, but added that it was a good step forward.

The legislation's outcome could affect a 2014 ballot measure that would cap the annual interest rate for payday loans at 36 percent.

The Rev. James Bryan, treasurer of Missourians for Responsible Lending, said the group's initiative petition has been approved but they haven't started collecting signatures. Bryan said he wasn't familiar with the details of Cunningham's legislation since he has been traveling outside the country.

There were 934 licensed payday loan lenders in the state in 2012, according to the Missouri Division of Finance. The division estimates that between October 2011 and September 2012, there were 2.34 million loans issued with an average value of $306 at an average interest rate of 455 percent.

Arkansas is the only one of Missouri's neighbors to currently allow payday loan renewals.

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Payday loans is SB694

Online:

Legislature: http://www.moga.mo.gov