Payday Loan Times

Thirty-six percent is about twice the interest rate many consumers pay on their credit cards. On Wednesday, Attorney General Jay Nixon said that’s also as much as anyone should have to pay for a payday loan.

Payday loans are short-term and easy to get, and millions use them between paychecks, reports the St. Louis Post-Dispatch.

Nixon joined three legislators who are sponsoring bills to cap the interest on no fax payday loans at 36 percent. That’s the limit Congress set last year for military service members and spouses.

The average Missouri payday loan last year was $274, according to a survey by state regulators, while consumers paid an average of 422 percent annual interest on payday loans.

“Legal loan-sharking,” Nixon called it.

Critics say the numbers tell the story, noting that Missourians paid $317 million in fees and interest on savings account payday loans in 2005, second only to what Californians paid, according to a study by the Center for Responsible Lending.

Nixon says Missouri has no real limit on the interest. The state allows payday loan operators to renew loans six times — effectively allowing interest rates of up to 1,950 percent, Nixon and consumer groups calculate.

Unlike Missouri, Illinois bars renewals. Illinois limits the interest to $15.50 per $100.

Guaranteed payday loan operators see a different story in the numbers. The number of loans in the state was booming at 2.87 million last year, up from 2 million in 2003; the number of defaulted loans was 183,000, up from 124,461 in 2003, and the number of complaints remained low, according to the Missouri Division of Finance.

The number of loan operators increased from 912 in 2003 to 1,545 last year.

“People are very pleased with them,” said Randy Scherr, lobbyist for the United Payday Lenders of Missouri, an industry group. “If they were that unpopular, there wouldn’t be 2.8 million of these loans out there.”

Sen. Rita Heard Days, D-Bel-Nor, a sponsor of the Senate bill, said consumers who take out cash advance loans often are vulnerable because of health or cash problems.

“It’s becoming a major industry in our state — at the expense of poor people,” she said.

She offered the same bill last year. “I did not even get a hearing,” she said.

The lenders group says it will again oppose the bill. Scherr said Missouri already discriminates against payday loans: They are the only cash advances in the state regulated by an interest cap.

“Why would interest caps be a good thing in a market-driven society?” Scherr asked. “People act with their feet.”

Nixon said the Legislature “needs to stand up to these people.”

The last time the Legislature acted on payday loans, he said caustically, “they courageously limited (the interest) to 1,950 percent.”

Of cash advance online loans, Nixon said, “Missouri has the worst laws in the country. There is no protection for consumers.”