Payday Loan Times

Struggling Missourians gave no fax payday loan companies $317 million last year alone.

Few laws protect borrowers from the fees and high interest that those companies charge. What’s worse, the laws that are on the books aren’t always enforceable because of a loophole.

Some lawmakers proposed bills that would tighten the restrictions on payday advance loan companies. One payday loan borrower says passing a law would do nothing to help struggling Missourians if it’s not enforced.

Lee Griffin of Springfield says he’s fighting a losing battle.

“I thought it was going to help but it didn’t,” said Griffin.

Griffin needed some money two years ago, so he went to an instant cash loan company. He now says it was one of the biggest mistakes that he ever made because “a few months later, I was running so short because I was trying to make payday loans; I didn’t have enough for my other bills.

Griffin got another payday loan to try to catch up - and then another. He borrowed a total of $2,500 and is now paying $425 a month to pay it off, but he feels like he’s getting nowhere

“Since this all began with the first loan, I’ve paid $8,250. My principle has dropped $660,” said Griffin.

There is a law in place meant to protect faxless cash advance borrowers like Griffin from spiraling out of control.

“No borrower shall be required to pay a total amount of accumulated interest and fees in excess of seventy-five percent of the initial loan amount on any single loan,” the law says.

So far, however, Lee has paid more than 3000 percent in interest, and he wants to know why.

The answer, according to Attorney General Jay Nixon - is a loophole in the law that applies to these bad credit payday loans.

The problem, Nixon says, is current law doesn’t prevent renewals. Therefore, if you need more money and combine your current loan balance with a new one, the 75-percent rule doesn’t apply. That’s exactly what happened to Griffin.

“What happens often is the interest rate seems smaller and you don’t get it paid off and you renew it and the interest rate just gets bigger and bigger,” said Nixon.

Not all companies even bother with the loophole. A reporter found four examples of supposedly low fee payday loans issued in Springfield. All are new loans - not renewals - yet all result in far more than 75 percent in interest and fees.

In one case, the borrower will end up paying $260 interest on a $100 loan - that’s 260 percent. In another case, the borrower will end up paying $780 interest on a $300 loan - also 260 percent.

Despite these examples, during 2006, the Missouri Division of Finance gave more than 91 percent of quick cash loan companies a satisfactory compliance evaluation. It yanked the licenses of just 12 companies.

While there’s no way to know for sure how many payday loan companies are getting away with making illegal loans, Mike Cherry, chief executive officer of Consumer Credit Counseling Service in Springfield, says he’s sure it’s a lot higher than 12 companies.

“I would say 12 would be on the very low end of what’s going on out there,” said Cherry.

Both Cherry and Attorney General Nixon agree Senate Bill 96 could go a long way towards controlling payday cash advances. It would not only cap the annual percentage rate of payday loans at 36 percent but also would prohibit renewals and rollovers and give enforcement duties to the attorney general. However, the bill – and four similar ones – did not make it out of committee. The Legislature’s regular session ends on May 18.

“The bottom line is this is a huge problem in Missouri and legislators need to step up and do their job and protect vulnerable consumers,” said Nixon.

If you have to get a payday loan, you can take some steps to make sure you’re not getting ripped off. Ask for a payment schedule that clearly lists the total amount you’ll pay in interest and fees by the time the loan is paid off. Divide that amount by the amount financed - and it should be less than .75 (which translates to 75 percent).

A spokesman for the Missouri payday loan industry regrets that a few companies are making the entire industry look bad. Tom Linafelt says, to protect themselves, customers should look for a blue seal on the storefront indicating the payday lender is a member of Community Financial Services Association of America. All CFSA members agree to abide by a set of best practices aimed at protecting customers.