Sikeston City Council puts moratorium on new payday loan businesses

SIKESTON, Mo. -- The Sikeston City Council has decided on a six-month moratorium on any new payday loan businesses or branch offices within the city while they research legislative options.

"During that time council will research what we can do locally and draft appropriate legislation for consideration," said Linda Lowes, director of governmental services.

Payday loans, also called paycheck loans or cash advances, are small, short-term loans with high interest rates intended to enable the borrower to meet expenses until their next payday. The moratorium on new shops offering this service was approved during a special meeting Monday morning.

"I just think they are predatory lenders," councilman Mike Bohannon said of payday loan businesses. "They take advantage of those who can least afford it."

"In 2002 the state legislature passed laws allowing lenders to charge fees and interest up to 75 percent of the loan amount," Lowes said. "According to the Missouri Division of Finance, since the enactment of these laws, payday loans made to consumers average more than 400 percent APR."

Lowes said according to a Better Business Bureau study, on a two week loan it translates to an annual percentage rate of 1,950 percent -- the highest amount allowed in the 43 states that have either banned payday loans or set APR caps on payday loans.

Gale Wessling, owner of Ready Cash, noted that some national payday loan companies operate by doing high volumes of business -- something his business isn't willing or able to do.

"We only make loans to people who qualify," Wessling said. "We make sure they are not overloaded with debt, that they don't have too many loans out. We don't make loans to people that don't have stability or income."

Wessling, who has operated his payday loan business here since 1997, said his business also insists that outstanding loans are paid completely off as stipulated in the contract rather than rolling over loans or making additional loans.

"Payday loans are no different than banks," he said. "We are state regulated and we are examined by the state who also examines the banking industry -- it's the same examiners."

Wessling said unlike banks, his business cannot tack on an acquisition fee for loans.

"And if you pay it off within 24 hours, we cannot charge you one penny interest," he said.

Banks, he said, will not loan people small, short-term loans of $100 or $200 and added that people who don't have credit cards or collateral may still need money for an emergency.

"If they need medicine for their child, where are they going to go? If they are get a flat tire, where are they going to go? The bank won't lend them the money," he said. "There's many, many reasons why we loan money to these people. If it were not for the payday loan industry, people could hardly survive."

Regarding the interest, Wessling said: "These are risky, volatile loans, consequently we have a high percentage loss."

Wessling said the interest he charges is nowhere near what a bank can charge a customers for an insufficient-fund fee.

If the city council thinks payday loan businesses are predatory and not justified to charge for their service they way they do, Wessling said, "let them make a loan to somebody who wants $200 and has been on the job for 30 days."

"Currently we have 17 licensed payday lenders in Sikeston," Lowes said. "That's one for every thousand residents."

To provide a comparison, Lowes presented the council with figures from Poplar Bluff, Mo., which has a population roughly the same as Sikeston's, and Cape Girardeau, which has 38,000 residents.

"Poplar Bluff has 20 and Cape Girardeau has 36 licensed payday loan companies," she said.

"I think we've got 17 too many," Bohannon said. "There used to be a thing called a loan shark and these people put loan sharks to shame."

"By placing the moratorium, council will have that six months to study it and take whatever action they think is warranted," Lowes said.