Reforming Missouri's Payday Loan Industry

For a number of years, the Legislature has attempted to reform the payday loan industry. These businesses extend short-term, high-interest loans, usually to people with few, if any, other options. These are generally individuals or families who are suddenly faced with a financial emergency or have fallen on hard times. They need money quickly, so they agree to a loan with huge interest rates, and only a short time frame to pay it back. If the customer doesn’t pay the loan on time, it’s renewed, and that can happen up to six times.

Before long, the loan has snowballed into an unmanageable debt. The customer is trapped, and whatever financial problems they had before are even worse. And, there is a reason these businesses often spring up in lower-income areas. They’re designed to prey on those with few other loan options available. The way the industry operates now is only contributing the cycle of poverty we’ve been trying to stop.

The payday loan industry must be reformed. While they are legitimate businesses, we need stronger regulations in place to protect the public. This is why I’ve filed Senate Billy 187 this year, which would institute a number of important changes, including:

• Barring loan renewals;
• Prohibiting interest rates on loans; only  fee could be charged;
• Using fees on loans to create the Small Loan Community Reinvestment Program, which would go toward educational tutoring and development, financial literacy, early childhood development, youth mentoring and senior services;
• Requiring lenders to not make more than one loan to a borrower at a time;
• Repealing the current payday loan terms of 14 days or up to 31 days, and replaces those with loan for up to 30, 60 or 90 days; and
• Mandates that borrowers who prepay the loan be prorated and refunded all fees.

There is bipartisan support for payday loan reform, as evidenced by last year’s Senate Bill 694, filed by a member of the Majority Caucus. We’re all aware of the problems currently associated with this industry. It’s time we take action to protect the public from predatory lending practices.