February 16, 2007
Kansas City, Mo. — A recent report showing that payday loan businesses in Missouri charged an average annual percentage rate of 422 percent last year has led to a renewed call for reform in the payday loan industry.
Attorney General Jay Nixon and state Rep. John Burnett of Kansas City, the sponsor of House Bill 237, a payday loan bill, held a news conference in Kansas City today to highlight the need for reform. They were joined in calling for payday loan legislation by advocates for the poor, including Larry Weber, executive director of the Missouri Catholic Conference; and Michael Halterman, CEO of Catholic Charities of Kansas City-St. Joseph Inc.
Nixon cited the Jan. 17 report from the Missouri Division of Finance both at the news conference and in a letter to members of the General Assembly asking them to pass legislation on payday loans to protect Missouri families. The biennial report showed that the number of payday loans continues to rise in Missouri - approximately 2.8 million loans were issued for the one-year period that ended Sept. 30, 2006, an increase of 11 percent over the last report issued in 2005. Missourians borrowed more than $787 million from payday lenders in only one year, Nixon said.
There are now 1,545 licensed payday loan businesses, an increase of 347 from the previous report, issued in 2005. In addition, a study by the Center for Responsible Lending showed that Missourians paid $317 million in fees and interest on payday loans in 2005, second only to California nationally.
“The payday loan industry continues to explode in Missouri, and it is doing so at the expense of desperate Missourians who are so cash-strapped that they have serious problems in paying their rent and utilities or purchasing food,” Nixon said. “I have called for reform of this industry in Missouri for years, which we need now more than ever.”
“We have fought the payday loan industry for years now in Missouri,” Burnett said. “In my district, it seems every vacant storefront becomes a payday loan office. We have to control this industry or they will continue to ride roughshod over working people in Missouri. Congress has demanded protection for the military and we should demand similar protection for Missouri citizens.”
“Many people in financial straits are entrapped by payday lenders before seeking financial assistance from Catholic Charities and other social service agencies,” Weber said. “Unfortunately, by the time their debts compound many times their original amount because of payday loans' prodigious interest rates, it becomes much more difficult to help these people meet their medical, utility or basic living expenses.”
“Poverty is impacting over 12% of people living in Missouri, and many turn to payday loans in a desperate measure to pay for health care bills, mortgage payments, rent, food and utility bills,” Halterman said. “Due to the high interest rates charged by these companies, borrowers find themselves in a downward economic spiral, and they never financially recover.”
Nixon noted that while eight neighboring states have strict limits on the interest rates and forbid renewals, Missouri has no real limit on interest charged and allows up to six renewals - effectively allowing payday operator to charge interest rates of up to 1,950 APR. Nixon is supporting legislation this session sponsored by Burnett, Sen. Rita Days of St. Louis and Rep. James Whorton of Trenton, that would:
Payday lenders currently are regulated by the Missouri Division of Finance and the Attorney General can only take action when cases are referred by that division.
“Consumers who take out payday loans can easily get themselves in a hole they can never dig out of, and our lack of laws to protect consumers makes the situation worse,” Nixon said. “Reform in regulating this industry is the only way we can provide real protection.”
The Attorney General has long been a vocal advocate to protect Missouri families from payday loan exploitation. Nixon highlighted the problems with payday loans in Missouri in 2005 when the previous report from the Missouri Division of Finance showed lenders were charging an average of 408 percent APR. In 2002, Nixon also urged then-Gov. Holden to veto a payday loan bill that allows the current interest cap at 1,950 percent.