Nixon wants governor to veto payday loan bill

JEFFERSON CITY, Mo. -- Missouri Attorney General Jay Nixon on Wednesday urged the governor to veto legislation backers say would cap interest rates on payday loans.

Nixon said that instead of reforming the payday loan industry, the bill actually shields lenders from consumer protection laws and allows them to charge consumers an annual percentage rate of up to 1,950 percent on loans.

Lawmakers passed the bill during the recently completed legislative session with support of consumer and industry advocates and sent it to Gov. Bob Holden for his consideration.

"The General Assembly needs to take another run at payday loan reform next year," Nixon said. "In the meantime, Gov. Holden should protect consumers by vetoing this wolf in sheep's clothing."

Nixon also claims that the bill would allow payday loan lenders to remain outside Missouri consumer fraud laws that cover their businesses.

Jerry Nachtigal, Holden's spokesman, said that the governor was still reviewing legislation and had no comment on Nixon's claims.

Payday loans are short-term loans for $500 or less. Customers receive cash by writing a check for the loan amount plus a fee, which the lender holds until the customer's next payday.

Under the bill being considered by Holden, interest and fees on so-called payday loans would be capped at 75 percent of the principal, meaning a lender could charge no more than $75 for a $100 loan.

The bill also requires borrowers to pay at least 5 percent of the principal when renewing the loan and limits renewals to six times -- about half the number allowed under current law.

Provisions vague

Nixon said those provisions are vague and would actually allow lenders to charge up to 75 percent every two weeks. With the rollover, people who don't pay off the entire loan could end up owing "astronomical" amounts of interest.

Supporters of the bill say it would prevent people in need of quick cash from building up debt they can never repay.

They also said the bill also could prevent payday loan businesses from turning delinquent accounts over to prosecutors -- a current practice viewed as harsh by consumer advocates.

Larry Weber, who represents the Missouri Catholic Conference, one of several church and consumer groups supporting the bill, said Nixon had an opportunity during the legislative session to raise concerns.

"I am curious as to why he was so late coming to the discussion. We would have liked his input earlier," Weber said. "There's a lot of consumer protection in the bill that's not in current law right now."

Under state law, Holden has until mid-July to sign or veto legislation. If he takes no action, legislation automatically takes effect. Most bills in Missouri become law Aug. 28.

The payday loan bill is SB884 (DePasco).