“Payday loans play a purpose in our financial climate today,” said Brandom, pointing out that the lowest sum of money one can borrow from U.S. bank is $3,000. “People who make use of the payday loans are those who have no credit available and have no security to offer,” she said.
Payday loans are for short periods of just weeks. However, if a borrow cannot pay back a loan at the time it becomes due, payday lenders often allow the borrow to renew -- or rollover -- the loan repeatedly. Critics charge these renews put the borrower further and further into debt.
“We limited the number of rollovers on these loans - we took them from six to three and we instigated a one business day cooling-off period to prevent an impulse borrower from immediately borrowing,” Brandom explained. Her measure would also require borrower to pay $25 off the loan when asking for renewal and have the companies offer 60-day interest-free payment plan to the clients who have difficulties to pay on the maturity day.
Testifying against the bill was Rep. Mary Still, D-Columbia, who charged the bill did not restrict interest rates enough. She said that Missouri already had the highest annual percentage rate for payday loans in the US. “And this bill caps the APR at 1,564 per cent,” she added, claiming it doesn’t change anything, but only preserves the status quo.
Still and various consumer-protection groups have argued for a lower interest rate. But Brandom said that would be impractical.
“With the 36 percent limitation, the lender would receive $1 and 38 cents for loaning someone $100 for two weeks, and this is not practical for the business – nobody could survive that,” Brandom said.
During previous House floor discussion of the bill, an amendment was added requiring establishment of pilot-program database available for all lenders. To this database, lenders would file information on borrowers in order to prevent them from opening several loans with different companies.
Randy Scherr from the Missouri Payday Lenders opposed that provision saying “it would be very hard on the small lenders”. He also objected to the 24-hour waiting period: “With this waiting period, you could have completely debt free individual, say single mother, walking out of store without the ability to get some credit that they need the next morning for muffler or brakes on their car.”
Sen. John Lamping, R-St Louis County, said he thought the APR was misleading: “If I lend you $100 and you pay me back in two hours from now and I charge you $10 for the loan, the APR is in thousands and thousands – it’s a meaningless thing. We need to have a one common standard of conversation of what does it actually cost,” he stated.
Mike Hoey from the Missouri Catholic Conference also claimed the loan’s APR figures were misleading, but the idea of setting cap (highest amount the companies can charge for the two-week loan) appeared to him as reasonable: “We knew that Florida charged $10 for $100, so we suggested to the industry a $15 cap. What we got back was “no” - no $15, no $17, no $20, no $24 cap, no cap at all,” he said, mentioning that according to a study conducted by University of Dartmouth, Florida lending industry has been thriving, notwithstanding the cap limit and loan-renewal prohibition.
Hoey did not consider the bill to be a meaningful reform. “It may a sincere attempt, but it’s not getting there: it’s like instead of having cement blocks on both feet you have cement block on one foot. So you will sink, maybe not quite as quickly, but you’re still going to sink,” he said. “Over three renewals, which means in six weeks, you can end up paying 60 per cent in fees on the original loan amount,” Hoey calculated.
Bill Trimm from the Missouri Silver-Haired Legislature was the only witness who went on the record to formally testify in favor of the bill, without adding any supplementary evidence.
Committee Chair Brad Lager, R-Maryville, said the committee would take up the bill for a vote on Thursday.
Editor's note: Martin Kramara is a Catholic priest from Slovakia working at MDN under an exchange program with the Pontifical University of the Holy Cross. Since the Missouri Catholic Conference has taken a position on this issue, he has asked that his religious affiliation be noted in this story.
Missouri Digital News is produced by Missouri Digital News, Inc. -- a non profit organization of current and former journalists.