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Members of Women's Voices will be working with Missourians for Responsible Lending, a new statewide organization, in an effort to curb predatory lending practices in the state.

Missouri has more payday lending outlets than almost any other state in the country, and the average APR on loans issued by these outlets is 445 percent. Car title loans, some consumer installment loans and other small loans often charge usurious rates.

Since efforts to cap these interest rates in the Missouri legislature have been futile, Missourians for Responsible Lending is spearheading a campaign through a citizen's initiative on the 2012 ballot. Members of Women's Voices and other progressive and faith-based organizations will be collecting signatures for a ballot initiative that will cap the interest rate at 36 percent. Voters in Arizona, Ohio and Montana recently approved similar ballot initiatives.

Myth Vs Reality

The Truth About Payday Lending In Missouri

There are more payday lenders in Missouri than almost any other state of the union. They are most often found in low-income neighborhoods, small towns and rural communities. Payday lenders entice people to borrow small amounts of money; the average loan is about $300. But the cost of paying back these loans is HUGE. In Missouri, payday lenders charge borrowers an average annual percentage rate (APR) of 445 percent.

This excessive interest rate results in great financial distress for citizens of moderate means. They get trapped in a cycle of debt that can, and often does, destroy families. Most borrowers get stuck in eight transactions a year, typically taken out back-to-back, before they can exit the loan. This means that on a loan of $300, they pay a $57 fee for the first two weeks, and another $57 fee over and over again. None of this money ever goes to pay down the original loan. If a borrower engages in eight repeat transactions, that's $456 in fees alone---and he or she still owes the original $300!

The federal government has passed legislation that caps the interest rate for payday and car title loans to members of the military on active duty at an APR of 36 percent. Efforts are now underway in Missouri to get an initiative on the ballot that, if passed, would limit loans to all Missourians to an APR of no more than 36 percent.

Payday lenders get their money from big banks and large financial institutions. Because of this backing and their ability to charge excessive interest rates, they are able to promote many misconceptions about the practice of payday lending. Following are some of those myths, balanced against the realities of the practice of predatory lending.

Myth	Reality
It makes perfect sense to take out a payday loan when you need a short-term cash advance. It will be cheaper to repay the loan than it will be to incur fees for late payments or bounced checks at a bank.	Very few payday loans are repaid in the initial two-week lending period, and lenders do not allow partial payments to pay down debt. This means that borrowers continually re-borrow, paying hefty fees and more interest charges every time they do this. This keeps borrowers trapped in a cycle of debt that can take years to pay off. Because they are trapped in an ongoing cycle of debt, payday borrowers frequently default on other bills and obligations, such as rent and utilities.
Capping the interest rate on payday loans makes it impossible for small-dollar lenders to operate, and eliminates consumer credit opportunities for those most in need. In states where small-dollar interest rates have been capped, people have no safe, legal credit options, and turn instead to loan sharks and high-cost internet lenders.	Until the early 1990s, small-dollar lenders operated in Missouri at our historical usury cap of 28 percent APR. In other states that have capped interest rates on small-dollar loans, lenders are able to operate at a healthy profit margin and consumers are better off. North Carolina, for example, saw a 40 percent increase in responsible small-dollar lending when the state restored its uniform 36 percent rate cap, just like we're trying to do in Missouri. Today, 17 states, plus the District of Columbia, cap the rates of payday loans at or about 36 percent. Arkansas, our neighbor to the south, enforces a 17 percent usury cap. Voters in Arizona, Ohio and Montana recently voted to cap rates at 36 percent. Collectively, these states save their citizens more than $2 billion a year.
Capping interest rates on payday, car title and consumer installment loans will hurt local tax revenues and eliminate jobs in Missouri.	Officials with numerous agencies in Kansas City, St. Louis and St. Joseph, plus several county officials, are on record stating that the proposed reform would have no fiscal impact on them. The thousands of predatory lending storefronts in Missouri employ a relatively small number of workers. Studies show that high interest rates drain hundreds of millions of dollars from Missouri families each year. Capping interest rates at an affordable level will have a positive impact on the state economy and help communities recover from the economic recession.
Annual percentage rate (APR) is not an appropriate term to use in connection with payday loans, because payday loans are so short-term. It's misleading to talk about an APR for a loan offered for only two weeks.	To help borrowers decipher the real, actual cost of a loan (including fees) and compare various credit options, Congress developed the APR as a standard measure that accounts for the amount of time the borrower has to repay the loan and most fees. The federal Truth In Lending Act requires lenders to post the APR for all products that carry interest. Consumer lending law applies APR across the board, whether for car loans, mortgage loans, cash advances on credit cards, or payday loans.
Any reform in Missouri is better than current law. Florida legislation is a good model for Missouri, because it balances the needs of consumers with the needs of the industry.	Although Florida consumer law codifies "best practices" for the loan industry, it does not significantly lower interest rates. This keeps borrowers stuck in long-term debt. A recent report showed that the average borrower in Florida had more than eight loans a year, and 76 percent of these loans were taken out within two weeks of a previous loan being paid off.
Taking out a payday loan and re-paying it will help a borrower's credit rating.	Payday lenders typically do not report borrowing history to the major credit rating agencies. Furthermore, studies show that payday loans lead to increased likelihood of bankruptcy, delinquency on other bills, and often, to the closure of a borrower's bank account.

The Solution To The Problem Of Predatory Lending In Missouri

The proliferation of payday lenders in Missouri, the number of residents they trap into a cycle of debt each year, and the unconscionable interest rates they charge, demands immediate intervention. Predatory lending practices destroy family economic stability every single day, and prevent Missourians from maintaining their incomes and building wealth.

Members of Women's Voices Raised for Social Justice are pleased to be partnering with Missourians for Responsible Lending to support an initiative petition to be placed on the Missouri ballot in November, 2012. This initiative, if passed, will limit the amount of interest payday lenders can charge to an APR of 36 percent.

Your signature on the initiative petition will help bring economic justice to the people of Missouri.

February 2011

As a result of the Women's Voices program in February 2011 dealing with predatory lending, members have continued to follow this issue as HB 132, sponsored by Rep. Mary Still, tries to gain traction in the state legislature. Several of our members attended a meeting on this issue on Feb. 24, sponsored by State Rep. Rory Ellinger. On March 9 the Financial Services Institutions Committee in the House held a hearing on payday lending. WV member and past President Barbara Finch submitted testimony in support of this legislation.

If you are interested in becoming involved in any of our advocacy efforts, email us at .