Payday's price

As she sits at the wheel of her idling car, Chris Hamilton is at one of her least favorite destinations.

The 42-year-old single mother of four says she is about to make a "ridiculous" financial decision. But with payday still more than a week away and bill collectors giving her headaches, she says she doesn't have any other choice.

So here she sits cursing the luck that brought her back to one of Cape Girardeau's payday loan providers.

"I don't know what the answer is, I really don't," said Hamilton discussing her financial woes. Hamilton is about to borrow $400, which, after several anticipated extensions, she will pay back as more than $600.

Hamilton is not alone.

There are 21 licensed payday loan providers operating in Cape Girardeau County. Almost all of these stores are less than 7 years old, and business is booming. In 2004 -- the most recent year with data available -- Missouri granted licenses to 1,198 of the stores, a 37.5 percent increase from the previous year.

Cash advance stores are popular for a reason. With slot-machine slogans like "easy money" or "fast cash," they're designed to beckon passers-by. And for many, the stores follow through on the promise. A borrower only needs a bank statement with a positive balance, a paycheck stub and a post-dated check to serve as collateral. Other loans require only a car title.

With minimal paperwork and no credit check, virtually anyone can leave the store with cash in hand ranging from $50 to $500 after only a couple of minutes of work.

Supporters say the stores fill an important void.

"Most of the big banks won't do loans below $3,000 anymore," said Mindi Young, manager of Easy Money at 320 N. Kingshighway. "We don't do a credit check, and a lot of people -- whatever the circumstances may be -- do not have good credit. Well, those same people can come here, and we'll give them the money. They do pay a higher rate, but they get the money they need."

It is this need for small loans, said Young, that explains why Missourians took out 2.6 million payday loans in 2004.

But these loans come with a price tag. Missouri law allows lenders to charge as much as 75 percent of the original loan in interest and fees. Missouri law also allows up to six rollover loans. Rollovers are when borrowers extend the loan, typically in increments of 14 days.

The average cost of payday loans in Missouri is $15 for every $100 borrowed for 14 days.

Paycheck to paycheck

Hamilton says her situation is not unique. She works the late-night shift at a local retirement home for $9.50 per hour. She has five dependents, including her mother, who has moved back home with the family.

She claims to have perfected the art of living on the edge by only paying bills at the last possible moment. While she depends on payday loans to pull it off, she also feels they are part of what keeps her stuck in a cycle of poverty.

"Whenever you're in a position where you're about to get your lights and water turned off or they're talking about repo-ing your truck, you feel like you don't have another choice," she said. "But when it comes time to pay them back and you have to take out another loan just to do that, that's when you realize what you're in for."

Hamilton said it takes a magic trick to pull off paying the $300 rent, more than $400 in heating and utilities, $90 in car insurance, $370 in car payments, food, clothing and unexpected medical bills every month for a family of six. She said her low-paying job does not cover it all. So when she figures her bills, she factors in a monthly loan of $300 or $400 to make ends meet.

"You see these places everywhere, and they're here because they know that you need the money and you're willing to sign," she said. "It's only when it comes back that you think, 'God, this is a lot, and I just borrowed this money two weeks ago.'"

But Young said her loan business makes every effort to prevent people from overextending themselves financially. She said short-term loan operators are required to register customers in a national database and are not allowed to loan to someone with two concurrent loans. She also said her company will not make loans that exceed a person's weekly earnings.

Interest in reform

Some Missouri lawmakers would like to see the industry reformed. State Rep. John P. Burnett, D-Kansas City, has led the charge against what he believes to be predatory lending practices. He is drafting a bill that would make it illegal for lenders to charge an annualized interest rate of more than 36 percent and would eliminate rollovers.

If passed, the bill would bring Missouri into line with Illinois, which passed its own Payday Loan Reform Act in December.

Missouri Attorney General Jay Nixon supports tougher action. "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," said Nixon in a statement issued last year.

But Young, the Easy Money manager, believes that politicians who attack payday loans are focusing on the symptoms instead of the virus.

"I would say that they need to step out of their world that they live in and come back into reality," she said. "They need to know that just because they make six figures per year that doesn't mean that everybody does, so they might need to wake up and realize that the middle class is becoming nonexistent."

tgreaney@semissourian.com

335-6611, extension 245

Missouri loans

* Licenses granted in 2004: 1,198

* Rate: Loan and renewals not allowed to earn more interest than 75 percent of original principal

* Maximum loan: $500

* Rollovers: Limited to six

* Average number of rollovers: 2.2

* Complaints to Missouri Division of Finance: Approximately 1 per working day

* In other Midwestern states included in the Division of Finance survey, only Oklahoma currently allows rollover loans and no states reported near the level of customer complaints as Missouri.

SOURCE: Missouri Division of Finance