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Payday Loans Industry May Face Tougher Regulation in Missouri

[Dec 4, 2008.]


Lawmakers in Missouri look set to review the state’s legislation governing payday loans. Monday saw Representative-elect Mary Still pre-file a House Bill (HB81) that seeks to tighten regulation.

If passed, the bill will allow payday lenders to continue to charge $15 per $100 borrowed for the first month of a loan. In that respect there would be no change from what typically may happen now. However, borrowers would be prevented from repeatedly renewing short-term loans. Instead any loan extended beyond 30 days would be capped, and the maximum APR (annual percentage rate) payable would be 36 percent.

Payday Loans in Missouri

Last year, Missouri’s Commissioner of Finance made a report to the Governor about payday loans. In it, the commissioner asserted: “The average loan [in 2007] was $274.72 and the average interest rate was 422.26%. This would result in an interest/fee of $39.05 for a 14-day loan.”

Missouri Payday Loans Less Regulated than Neighbors’

The report also reviewed payday loan regulation in eight neighboring and nearby states: Arkansas, Kansas, Iowa, Tennessee, Kentucky, Nebraska, Illinois, and Oklahoma. It noted that all of these forbade the renewal of a payday loan, and that all but one received fewer complaints than Missouri about related lending practices.

It is by no means clear that HB81 will ultimately be enacted. Representative-elect Still and her co-sponsors are all Democrats, and the Missouri House is Republican-controlled.

Argument Against Payday Loan Regulation

Not everyone is convinced that the case for greater regulation of fees or interest rates on payday loans has been conclusively made. In their 2008 report for the Urban Institute, Enabling Families to Weather Emergencies and Develop, Signe-Mary McKernan and Caroline Ratcliffe pose two questions: “Does regulating prices charged make fewer small, short-term loans available? Where will families who need these loans turn if they cannot get them?”


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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