Slow down Missouri’s expressway to debt

Economic Security

February 8, 2010  |  The Kansas City Star  |  Link to article

Missouri’s working poor families don’t have easy access to essential services like health care and child care.

But one “service” for the poor is blossoming in the state. Weak regulatory laws have turned Missouri into a magnet for payday loan shops. The state ranks fifth in the nation for the number of payday loans issued per capita.

Rather than helping low-income citizens get ahead, however, these short-term lenders too often lure borrowers into devastating debt.

Ask Elliot Clark. The disabled Vietnam veteran testified during a recent public hearing in Kansas City about how a two-week, $500 loan led him into a spiral of debt that over three years cost him more than $10,800 in interest on $2,500 worth of loans.

Clark said he sought his first loan to get out of a temporary financial jam. But each payment dug him into a deeper hole.

Bills filed in the state House and Senate would rein in the worst practices, including nursing home operators setting up in-house, high-interest loan operations for low-wage employees.

The legislation should succeed. Besides creating an expressway to bankruptcy, payday loans suck money from the economy by saddling borrowers with exorbitant interest rates.

The biggest stumbling block is Republican House Speaker Ron Richard. He held up reform legislation last session and hasn’t yet assigned the bills to a committee this year.

Richards should either give the bills a fair hearing or explain why he won’t.

The Missouri Division of Finance says about 1,275 licensed payday loan shops operate in the state. Neighboring Kansas, Iowa, Arkansas, Oklahoma and Illinois all report 500 or fewer.

The House legislation, co-sponsored by Democrats Mary Still from Columbia and John Burnett from Kansas City, would crack down on abusive practices. It would:

•Limit the annual percentage rate to 36 percent. Currently, the average annual percentage rate on a payday loan in Missouri is a whopping 430 percent.

•Prohibit companies from renewing loans, and stop lenders from giving a loan to someone who already holds one or has paid one off within the last week.

•Transfer oversight of payday loan firms from the state Division of Finance to the attorney general’s office.

These fixes won’t solve all the problems. Low-income people must have access to cash, and many are unable to get it from banks.

Some Missouri credit unions are getting into short-term lending at much lower interest rates than payday lenders. This should be encouraged. Communities should also provide generous emergency assistance funds. But the first step is to toughen up Missouri’s notoriously weak lending laws. Sensible regulations elsewhere have proven to be fair to the industry and the people. Missouri needs to move forward with reform this year.