By Melissa Dunson
JOPLIN, Mo. — Divorce. Depression. Suicide.
On a daily basis, Mike Cherry, president and chief executive officer of Consumer Credit Counseling Services in Joplin, sees the impact debt has on people. He also is applauding Missouri Attorney General Jay Nixon’s call to reform the payday-loan industry.
Cherry says his office helps 3,000 people each month deal with overwhelming debt. In 2006, his staff provided bankruptcy counseling for 10,750 people. More than half owed on at least one payday loan.
But some payday lenders think they’re unfairly characterized as loan sharks and crooks while other lending practices have been ignored.
Connie Bridges, manager of the Payday Money Store in Neosho, Mo., says the attorney general needs to take a look at banking and credit-card companies.
“I had a lady in here who was overdrawn by $1.73 and the bank penalized her $25,” Bridges said. “Some of them charge $7 a day on top of that for each day overdrawn. Now you tell me, who’s the crook?”
1,950 percent
Nixon recently sent a letter to the Missouri General Assembly asking legislators to support measures to limit the interest and other fees charged on a loan to about 36 percent, prohibit renewals of loans and clarify that limitations apply to both licensed and unlicensed lenders. The legislation would give Nixon’s office jurisdiction to issue cease-and-desist orders against violating lenders and allow him to sue for injunctions, restitution, rescission of loan contracts and civil penalties.
Nixon points to a recent report from the Missouri Division of Finance that indicated there are 60 percent more Missouri payday-loan businesses now than four years ago and 870,000 more payday loans have been made. More people are borrowing more money at higher interest rates resulting in nearly 60,000 more defaulted loans.
“Missourians continue to fall into the debt trap set and sprung by payday lenders who promise a quick fix to a financial pinch, but instead inflict greater harm through exorbitant fees and onerous terms,” Nixon wrote in a letter to legislators.
John Fougere, spokesman for Nixon, said the attorney general is asking lawmakers to give Missourians the same protections afforded residents of the eight states surrounding Missouri. None of Missouri’s neighbors allows lenders to renew payday loans, but Missouri permits six renewals, allowing payday lenders to charge up to a 1,950 annual percentage rate. Also, none of the surrounding states allows a higher percentage rate/fee on loans and only Nebraska and Oklahoma allow a greater maximum term, Fougere said.
“Our responsibility is to protect Missouri consumers," Fougere said. "We just want what our neighboring states have. The other states have strict limits on things like the APR. We want that for Missouri.”
‘A last resort’
In response to state and national pressure, the Community Financial Services Association, which represents more than half of payday lenders, voluntarily announced policy changes last week to protect and educate consumers. The changes include offering loan customers more time to repay with no additional fees, displaying a notice that payday loans are short-term and should not be used as a long-term financial solution, and banning advertisements that promote payday loans for frivolous uses.
The new practices will be put into place over the next three to five months. The group also is launching a $10 million campaign that includes advertising in national media outlets and brochures to be displayed in CFSA member companies.
Bridges said there are some predatory lenders, but not all payday businesses are looking for defaulted loans. She said her store has strict income guidelines for customers. The rules are meant to protect both consumers and the lender.
Bridges said her payday interest rate is $15 for every $100 borrowed and she will go as low as $5 a week to help consumers pay back the loan. She said payday loans don’t always push people into a cycle of debt and they can actually help people with a short-term cash-flow problem who can’t get a loan from a bank because of bad credit or who don’t want to take out the bank’s minimum loan amount. She said she has many customers who use her services once or twice to get through a hard time and she tries to make sure consumers understand how loans and interest payments work.
Bridges sees the proposed legislation as an attempt to wipe out the payday-loan industry in Missouri, but says as long as there are people short on cash, there will be those willing to lend. Without a regulated industry, the results will be worse, she said.
“It will go back to a black-market situation, back to the way it was 30 years ago,” she said. “That’s when it will be true loan sharks. I’m not out to bust anybody’s knees. Yeah, I’m a last resort for people, but I’ll take that.”
Missouri stats in 2006
Licenses were issued to 1,545 payday loan locations in Missouri and at any given time, there were 1,262 payday loan locations active.
Including renewals, 2.87 million payday loans were made.
The average loan was $274.72 with an average interest rate of 422.26 percent.
Ten complaints a day about payday loans and lenders were received by the state. Some of the complaints focused on checks being deposited early, collection tactics, proper crediting of payments and customers being unable to make payments due to the location being closed.
Twelve cease-and-desist orders were issued because of noncompliance and one lender was fined $5,000.
Source: Missouri Division of Finance.
Melissa Dunson writes for The Joplin (Mo.) Globe.
