January 26, 2005
A report showing that payday loan businesses in Missouri charged an average annual percentage rate of 408 percent demonstrates the need to reform laws regulating the industry, Missouri Attorney General Jay Nixon said.
The report, issued by the Missouri Division of Finance every two years, also showed that the number of loans is on the rise in the state - approximately 2.6 million loans for the one-year period that ended Sept. 30, 2004, an increase of 30 percent.
Missourians borrowed more than $626.6 million from payday lenders in only one year, Nixon said. There are now 1,198 licensed payday loan businesses, an increase of about 300 from the previous report, issued in 2003.
"The payday loan industry in Missouri is thriving, but it is doing so at the expense of cash-strapped Missourians who have run out of options to pay their rent, utilities, or purchase food," Nixon said. "We need reform of this industry in Missouri, and we need it as soon as possible."
Nixon noted that while neighboring states have strict limits on the interest rates and number of renewals that are allowed, Missouri has no real limit on interest charged and allows up to six renewals - effectively allowing payday operators to charge interest rates of up to 1,950 percent APR.
Nixon is supporting House Bill 164, sponsored by Rep. John Burnett, of Kansas City, that would:
• Limit the interest and other fees that may be charged on loans to 1.5 times the highest interest rate credit card companies can charge;
• Prohibit renewals of loans to circumvent rate restrictions;
• Grant jurisdiction to the Attorney General to issue cease and desist orders against violators;
• Allow the Attorney General to sue for injunctions, restitution, rescission of loan contracts and civil penalties for violations;
• Clarify that the limitations apply to all lenders, whether or not they are properly licensed.
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."
