West Plains Daily Quill: Predatory lending bill stalled in committee

Your car breaks down. The mechanic says repairs will cost $309, but you just paid your mortgage and electric bill. A close family member has been in the hospital, so you have missed work, and funds are tighter than normal. What do you do?

You might borrow from friends and family, if they have the resources. Or, for any number of reasons, you might stop by your neighborhood “payday loan” company. They’re all too happy to help, and since you get paid biweekly and know you’ll have more than enough to cover the $309, it looks like a win-win situation. You take the loan, which comes with an interest rate that matches the statewide average as of 2015: 451.91 percent. The contract is signed, and you walk out with the money to pay for your car repairs.

When payday comes, you visit the lender to settle up, only to realize you didn’t read the fine print very well. You knew they’d tack on a little interest, but you figured, “How much can it possibly be for a two-week loan?”

You see the bill for $362 and, making $10 an hour with missed work, realize you have $150 to last the next two weeks. That’s $150 to feed the children and the pets, pay the bills, and get caught up for the next month’s round of expenses.

You pray the mechanic fixed your car right and nothing unexpected happens in the meantime.

Senate Bill 647

Sen. Jill Schupp (D-24th District, St. Louis County) introduced Senate Bill 647 because of scenarios just like that. The bill, as presented, would cap the annual percentage rate for consumer credit loans, title loans, consumer installment loans, and unsecured loans of $500 or less — commonly known as payday loans — at 36 percent.

A Feb. 9, 2015 report to Gov. Nixon from the State Division of Finance was the source of the numbers used in the scenario opening this article, including the amount of the loan, which was the average for that reporting period. The resulting interest and fees for a 14-day loan were calculated to be $53.67. The same report said 904 payday loan licenses were issued in 2014, with 898 being the average number in operation at any given time.

Though the current average interest rate is about 452 percent, Missouri state law actually allows lending companies to charge “as parties agree with a maximum of 75 percent of the original principal in interest and fees,” the Division of Finance reports. On a $309 principal, that 75 percent equals about $232.

Neighboring states all have significantly stricter limits, from $15 per $100 in Kansas, Kentucky, and Nebraska, to 15 percent of the check’s amount in Tennessee – and the maximum allowed check there is $500, the report shows. Among contiguous states, Missouri and Illinois are the only states that allow loan renewals on payday loans. Missouri allows six, and Illinois allows only one per installment loan.

While the report shows that 93 percent of the licenses reviewed by the state in that period were deemed in compliance and only one cease-and-desist order was issued to a company for an instance of “serious non-compliance,” Sen. Schupp said she believes that regulations in Missouri are too lax.

“We have families caught in a cycle of debt because of payday loans on every corner,” she said. She claims that 36 percent APR – the same limit given by the federal government limits for active duty military personnel – gives companies plenty of room for profit. “If it’s good enough for our military families,” she professes, “it’s good enough for all of us.”

The looser regulations on the lending industry in Missouri, as compared to neighboring states, attracts what Schupp calls “predatory lenders” to the state. Indeed, of the contiguous states, Missouri has the second highest reported number of licenses issued, 886, following Tennessee with 1,323.

Arkansas has deregulated the payday loan industry, so no information is available to report from that state, according to the Division of Finance.

“(Predatory lenders) are concentrated in a lot of areas where there’s a lot of poverty,” Schupp said, explaining that it is particularly easy for low-income families to become trapped in a cycle of debt.

Motives questioned

Sen. Mike Cunningham (R-33rd District), who represents Douglas, Howell, Oregon, Ozark, Ripley, Texas, Webster, and Wright counties, said the bill was politically-motivated and therefore not worth the committee’s time.

“Every year some liberal Democrat brings up the bill, but it never passes,” he told the Quill by email before describing his views on the industry. He added, “The committee is limited by time and the number of bills it can handle. It doesn’t make sense to take up a bill simply for political purposes.”

Cunningham said the payday loan industry is crucial for people in emergency financial situations.

“I personally think (the bill) shuts off credit for people in need of instant cash that have no other resources. They may need to repair a car so they can get to a job, pay an electrical bill … Shutting down payday loans could force people to borrow from off-shore sources or internet lending services. It has actually hurt lower income people in states where the legislation passed,” he said. He did not provide the source for his last statement.

The Quill did ask for clarification – if the bill would seek to cap the interest rate to 36 percent, how does that correlate to shutting down payday loan companies?

Cunningham’s office replied, “If you place a cap on the loans, there is so little profit, there is no incentive to continue lending small amounts. Other states that have initiated a cap have seen the payday lending institutions close, leaving those who need just a little advance with nowhere to turn.” Schupp, however, said her office has been researching the topic heavily for several years, and with especial vigor in the last couple of years.

“We’ve learned a couple of interesting things,” she said. First – when people take out loans, it’s rarely for emergency situations, such as the one described in the opening of this article. She said her staff has discovered that the money lent is most often used for rent and utilities instead.

She said she and her staff have also been watching neighborhoods where predatory lenders are not in operation — either because they’ve left or because they’ve never set up shop. When there are fewer opportunities to borrow from a predatory lender, Schupp said, they turn to friends and family more often instead, or surprisingly, they change their spending habits, cutting back on unnecessary expenses.

“They don’t go looking for other high-interest loan opportunities,” she said, “And they usually end up just fine.”

As to the insinuation that SB 647 is politically motivated, Schupp said she finds that offensive. “These are my constituents,” she said. “And not just mine, they’re all over the state.” Sen. Schupp said she will file the again in the next cycle.

The Quill also reached out to Sen. Cunningham about information regarding the sources of some of his campaign contributions, but Cunningham did not respond. The National Institute on Money in State Politics reported that in 2015, Cunningham received the most contributions from the payday loan industry out of all the Missouri Senators, in both dollar amount and number of individual contributions.

The report shows that 32 individual contributions from industry donors amounted to $29,250 in Cunningham’s coffers. Of 34 Senators, six did not take any contributions from predatory or payday lenders. The second-highest number of contributions sourced from the lending industry was eight, made to Sen. Mike Parson (R-28th District), and the second-highest total contributions made by the industry was $20,875 to Sen. Ron Richard, (R-32nd District).

Contributions from the payday loan industry also crossed party lines, with eight Democratic Senators receiving $22,725 between them. Republican Senators, who outnumber Democrats substantially, received $193,800, according to the report.

Cunningham, while he did not address the contributions, did say that it is not up to him what bills move forward in the Financial and Government Organizations and Elections Committee.

Schupp, who is one of six senators who did not take any funds from predatory lenders, said she accepts contributions from just about anyone who will offer them, regardless of political ideology, but she draws a line at the payday loan industry.

“They are predatory, and I will continue to not accept (donations from) them,” she said. “I do not want that money. I know where it comes from.”

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