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JEFFERSON CITY
A bill that could give Missouri payday lenders the ability to trap borrowers into a debt cycle under a different name has hit Governor Mike Parson’s desk.
With no hearing or public scrutiny due to limited access to the Capitol, the bill passed shortly after Sept.
There was no indication on Tuesday whether Parson would sign or veto the law.
The move would prohibit local governments from charging fees from traditional installment lenders unless those fees are also charged to other government-regulated banking institutions.
While traditional installment lenders differ from payday lenders under Missouri law, both offer unsecured loans and can demand three-digit interest. Payday lenders often look for a flat rate repayment, while traditional installment loans can be repaid within a few months.
According to Lori Croy, spokeswoman for the Missouri Department of Commerce and Insurance, it’s not uncommon for payday lenders to have both payday and traditional installment loan licenses in Missouri, which is allowed under state law (DCI).
As states and cities crack down on payday lenders who charge exorbitant interest rates, there are many Migration to the less regulated area of traditional installment loans. the The same trend has played out in Missourialthough it has some of the least stringent regulations on payday lenders in the country.
“It will undermine the regulatory capacity of communities (the lenders),” said Paul Woodruff, executive director of the Prosperity Connection financial education center in St. Louis, of the recently passed provision.
Woodruff, who also runs the traditional installment lender RedDough Money Center, advocated an ordinance being imposed by St. Louis a permit fee to payday lenders who would help the city enforce its short term lending rules.
Rich history of scandal
Kansas City has a similar ordinance but a much richer history of payday loan scandals. It was at home an illegal payday loan of $ 2 billion Led by Leawood businessman and racing driver Scott Tucker.
the The industry has also caused the bankruptcy of a Kansas City company that funded payday lenders, charges against two Indian tribes, a $ 613 million fine on the U.S. bank, and the detention of another local payday lender.
The bill was put into a non-controversial measure that, in its original form, merely allowed the state treasurer to invest more in an affiliated small business deposit scheme. The two-page bill had grown to 55 pages by the time both chambers passed the measure last week. It also contained provisions on local retirement programs, family trusts, life insurance contracts, credit unions, and the licensing of mortgage brokers.
It is common for the legislature to try to pass its bills on by appending them as amendments to other measures. But practice comes with an unspoken rule: the add-ons are only accepted if they have been listened to.
This time, the independent invoice, sponsored by the Chairman of the Senate Committee for Insurance and Banking, was never intended for a public hearing. And without a hearing, there was no staff analysis of the tax implications.
“We haven’t heard from consumer groups about the risks involved, we haven’t heard who is profiting and who is losing,” said Rep. Peter Merideth, a St. Louis Democrat.
Merideth was the only lawmaker at Missouri House to raise the possibility that the bill could benefit payday lenders.
“That shows up on the floor and we ask questions, but we don’t get any real answers,” Merideth said. “There are no experts on the floor and even the legislature (in the House of Representatives) doesn’t really know what they’re doing.”
Merideth noted that the bill also allows lenders to collect legal fees if they win legal proceedings against local governments. Cities trying to enforce the regulations would need to see if a loss in court and a large payout are worth the risk, Merideth said.
“It will absolutely have a chilling effect,” he said.
“Misinformed legislation”
Change sponsor, Rep. Curtis Trent, a Republican from Springfield, said the provision had nothing to do with payday lenders and was a “minor change” requested by DCI’s finance department.
Currently, according to Trent, lenders are not allowed to charge consumers a convenience fee when they use their debit card to make a personal payment.
“Unless the lender can charge a convenience fee, they won’t be offering this service,” Trent said on the Missouri House floor. “… This would mean that it would be the same for all permitted payment methods, so that the consumer would have maximum flexibility as to where and how he would like to pay.”
Back in Trent’s borough, the City of Springfield recently took a measure r. enactRegulating Payday Lenders and Charging an Approval Fee. According to the Springfield News Leader, voters would eventually have to approve the measure in August.
And the legislature defending the change was unable to list examples of traditional installment lenders that would be affected by the change.
In an email, Croy said the department had not requested a measure to be passed but had “provided industry representatives with input on a language that might address this situation” of various amenity fees.
“This move in no way affects payday lenders or allows them to charge additional fees,” said Croy. “With the move only affecting traditional installment lenders, it would not remove any restrictions that a political division like Kansas City places on payday lenders.”
Woodruff said not all traditional installment lenders are predatory; some are credit unions, banks, community development financial institutions, and nonprofits. While the average interest rate on payday loans is 460 percent, its traditional installment lender offers an interest rate of 120 percent and carefully pays attention to whether a consumer can pay.
There is a lack of education among the public and legislators about access to secondary market credit, he said.
That leads to misinformed laws, he said.
“It clearly targets what St. Louis City and Kansas City did,” Woodruff said of the Trent change. “And there are churches that are trying to do the same.”
This story was originally published May 13, 2020 5:00 a.m.
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