Payday Loan Times

Brenda Procter, a University of Missouri financial educator, will discuss faxless payday loans and predatory lending Thursday evening in Columbia at an event sponsored by the central chapter of the Missouri Association of Social Welfare.

Procter will appear from 6:30 to 8:30 p.m. Thursday at the Columbia Labor Temple community room, 611 N. Garth Ave. Procter teaches and advises in the Personal Financial Planning Department in MU’s College of Human Environmental Sciences. The title of Procter’s talk is “When Creditors become Predators.” Cash loans will be a major focus.

Bob Quinn, executive director of MASW, will provide an update on the legislative status of bills dealing with predatory and instant payday loan lending.

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 Attorney General Jay Nixon’s call to reform the Missouri 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 advance loan 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?”

Payday loan limits: 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 personal cash 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 [cheap payday loan] 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.

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Last year, more than 2.8 billion Missouri payday loans were granted, translating to millions of dollars in interest money collected.

People who are in difficult financial situations or live paycheck-to-paycheck often turn to payday loans as a way of making ends meet or as a simple means of survival.

Jefferson City area residents David and Tracy Reames agree it’s a hard lesson and one they had to learn on their own.

“It’s easy. They make it way too easy to borrow money,” Tracy Reames said. “Borrowing money to make it through until the next payday seems harmless until you look at how much you’re paying back, and then it becomes ridiculous. It really is a viscous circle that seems as though it will never break.”

Calls to local no fax payday loan agencies were referred to corporate facilities that did not respond to repeated interview requests for this article.

Being married for 13 years, the Reames, like other young couples, struggle from month to month to pay all of the necessary bills and keep food on the table. David works full-time and Tracy stays home with their two children.

“It’s not like we borrowed the money to just have money to blow,” she said. “We didn’t spend it on silly things like telephone service or mini-vacations or trips to the local pizza place.

“Each loan we took out was for something we had to have like food, electric, water and so on.”

The number of families like the Reames, which felt the effects of a cash advance payday loan, has increased for the past several years.

According to a recent study by the Missouri Division of Finance, Missourians spent almost $320 million in payday loan interest fees last year. That is the second highest amount spent in the nation.

Once the bills start piling up, Tracy said, it’s hard not to reach out for help. And by taking out a payday loan, it doesn’t seem like charity.

But the Reames family was in a financial bind each week as paychecks seemed to stretch further and further apart.

“You start robbing Peter to pay Paul when the bills start to pile up, and then you start to panic,” Tracy said.

“The money has to come from somewhere. With two kids, you can’t afford to have the electric turned off and you need gasoline in the car to go back and forth to work and take the children to the doctor when they need to go.

“The next thing you know, you’re sucked in again and you feel like you’re never going to get out of debt.

“So, you borrow another [no fax payday advance] to pay off another loan and the cycle keeps going.”

Regardless of how hard they tried, the Reames constantly found themselves struggling to ease the financial pain.

Sometimes, the easiest way out was to just sign on the dotted line, take another cash loan online and hope for the best. However, the more they borrowed, the worse the situation seemed to get.

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Consumer advocates are fighting back against an industry that they say takes advantage of financially strapped Missourians.

Last year, short-term cash loan companies granted almost three million loans and charged customers an average annual percentage rate of 422 percent. Legislation being considered in the Legislature would place more limitations on payday loan companies.

A recent study by the Center for Responsible Lending found Missourians paid $317 million in fees and interest on faxless payday loans in 2005, second only to California. Many consumer advocates say it’s time to change that.

“They’re easier to find than a church probably,” said Mike Cherry of Consumer Credit Counseling Service.

Forget a Starbucks on every corner - more than 1,500 Missouri payday loan stores are in the state. The companies, which offer fast cash under $500, made 2.9 million loans last year, up 43 percent in just four years.

“If you can sign your name and breathe and will give them a check, you can get a loan,” said Cherry.

The problem is, if the payments aren’t made on time, the interest rolls over, forcing borrowers in Missouri to pay an average annual percentage rate of more than 400 percent last year.

“He borrowed $200 and has to pay back $720,” said Cherry, describing a client.

What’s worse, Cherry says, is that currently guaranteed payday loan companies can offer up to six renewals on a loan, effectively increasing the annual percentage rate to 1,650 percent.

“They’re in a vulnerable position where they need money and need money fast and ask no questions,” he said.

Cherry supports House Bill 237, which would limit the annual percentage rate on payday loans to 36 percent and prevent payday cash loans from being renewed to get around interest rate restrictions.

“Something needs to be done,” said Cherry.

HB 237 is in a special committee on financial institutions. It is not currently scheduled for a hearing. Similar bills were introduced last year and in 2004 but neither got out of committee.

In 2002, legislators passed a law that restricts the total interest and fees to 75 percent of the total loan but clearly there are ways around that as well. By the time his $200 loan is paid off, Cherry’s client will have paid $520 in interest, well more than the 75 percent limit.

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.”

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A City Council committee moved Wednesday to keep new payday loan businesses from opening in Kansas City.

The Kansas City Star reported that the Finance Committee voted for a moratorium on business and occupation licenses until June 30, while a task force investigates industry practices. The moratorium would apply to payday, title and signature loan businesses.

The full council is to consider the measure today. It would not affect regular and faxless payday advance businesses already open.

Mayor Pro Tem Alvin Brooks said the moratorium was needed to keep payday loan businesses from moving in from other cities passing similar measures.

Gladstone in October approved a moratorium on instant payday loans.

“Other communities on both sides of the state line are considering this,” Brooks said. “We want to certainly support small business, but we have a responsibility to look out for the safety of our citizens.”

Judy Hadley, city revenue commissioner who will lead the task force, said it would look into whether the fast cash loan businesses focused on poor areas and whether they followed state and federal laws.

Legislation that would further restrict predatory lending has been introduced in the Missouri General Assembly. Cash advance businesses have drawn attention as politicians have accused them of victimizing customers.

Like most shoppers, Linda Lanham knows what it’s like to feel the pressure of the holidays.

“You want to find the perfect gift and the perfect meal and sometimes your expectations of the holiday does not fit your budget,” said Lanham.

She knows how shoppers can be easily tempted by payday loan companies looking to take advantage of the financial strain caused by the holidays.

“People get desperate. There’s a lot of us that live payday to payday and anything can throw you into despair and you’re going to look for the quick way out,” she said.

This time of year, faxless payday advance companies offering that quick way out are working even harder to get people to sign on the dotted line.

“We’ve seen advertisements for holiday spending or loans that might be available that aren’t currently available the rest of the year,” said Tonya Collister of Consumer Credit Counseling Services.

Collister calls these savings account payday loans abusive. She came to a forum on predatory lending on Monday night to help educate Springfield residents about the dangers of payday, car title and other quick loans.

“The companies that offer that type of loan are going to charge higher interest rates,” she said.

On average, those cash advances charge 400 percent interest rates. Collister says a far better option is saving throughout the year for Christmas, making homemade gifts or explaining to your family why you’re cutting back.

“Spend what you can but don’t go out of your way to make it an extravagant Christmas if you can’t, and remember the real reason for the holidays,” she said.

QC Holdings Inc. faces a class-action lawsuit that says the company violated Missouri laws by renewing regular and no fax payday loans an excessive number of times and charging exorbitant interest rates.

The suit, filed Oct. 13 in the Circuit Court of St. Louis County, alleges that QC Financial Services Inc., a subsidiary of Overland Park-based QC Holdings doing business as Quik Cash, renewed a cash advance loan for the plaintiff, Dequae Woods, more than six times at a 469 percent interest rate.

The suit also alleges that Quik Cash didn’t evaluate Woods’ ability to repay the loan, charged more than 75 percent of the original loan amount in interest and fees and violated other Missouri payday advance laws, along with the state’s Merchandising Practices Act.

In a filing Wednesday with the Securities and Exchange Commission, QC Holdings said that it hasn’t filed an answer in the suit, but it plans to try to have the suit dismissed and an arbitration agreement with the plaintiff enforced.

A spokesman for QC Holdings couldn’t immediately be reached for comment Friday.

The suit seeks compensatory damages and an injunction prohibiting Quik Cash from engaging in the allegedly illegal pay day loan practices.

Senator Jim Talent (pictured) is involved in a heated race to keep his seat against Democratic challenger, Claire McCaskill.

Earlier this week, talent visited St. Robert to explain his support for a Senate bill, later passed by the Congress, that would military payday loan interest rates at 36 percent for service members.

While Missouri Democrats have attacked Talent’s figure for still being too high, Talent said Tuesday that 36 percent was the figure recommended by the Department of Defense, where officials are concerned about service members who are undeployable because debt problems have caused them to lose their security clearances.

Talent said the government has a legitimate role in protecting service members from abuse caused by these no faxing payday loans.
“These young men and women are great warriors, but they are young men and women in many cases,” Talent said.

“They get out of boot camp, they go to their first posting, they go to their MOS school, they get their first weekend off, and its very tempting for them to go into a place that promises them a bunch of things and doesn’t tell them the reality of what they are getting into. They borrow a couple of hundred dollars and then they find out they may pay back $1,000 over time."

Talent said 36 percent is “certainly more than enough to make a decent profit” and would “stop the [payday advance] lenders’ abuse in its tracks.”

While payday loans may be gone from nursing homes in Missouri, they still exist for other individuals around the state.

If everyone follows the lead of Geri Hughes, however, these fiscal resouces may become obsolete. Eight years ago, The Kansas City Star reports, Hughes suddenly found herself a single mom with four kids, loads of debt and big dreams.

She wanted a nice house for her children in Kansas City and she wanted to send her oldest daughter, Jeannette, to college. There were many enticements for quick-fix, high-interest no fax needed payday loans. However, Hughes, who works for the U.S. Treasury Department, steered clear. She’d seen how such loans entrapped acquaintances in cycles of debt.

Instead, in 1998 she enrolled in a pilot program offered in Kansas City and 12 other cities. The program’s intent was to help low-income and low-wealth families save, build assets and enter the financial mainstream, where they could share in the American dream. It was called Individual Development Accounts.

The concept was to offer an alternative to quick cash loans, while encouraging and rewarding monthly savings of working-poor families who were trying to buy their first home, pay for post-secondary education or start a small business.

Hughes participated in the initial program administered in Kansas City through the nonprofit Heart of America Family Services, now The Family Conservancy. As long as she saved $30 a month, the program matched her savings 2-to-1.

“You had to keep saving in order to get the match. You couldn’t withdraw any money until you reached your maximum account,” Hughes said.

So, how did she do?

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