State reps hold local hearing on payday loan reform
Five state representatives were present, including all of Columbia's.
Published Nov. 17, 2009
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Legislators question Randy Scherr, executive director of United Payday Lenders of Missouri, during a hearing on payday loan reform Monday at the Daniel Boone Regional Library. Scherr argued payday loans are a better alternative than other financial penalties.
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Five Democratic state representatives, including all Columbia's representatives, held an unofficial legislative-style hearing Monday night in Columbia to protest Republican opposition to reform of the payday loan industry.
Democratic Reps. Mary Still, Stephen Webber and Chris Kelly, who are all from Columbia, and Charlie Norr and John Burnett heard timed testimony from witness in the same format as a typical legislative hearing at the capitol. Still has sponsored HB 150, which aims to curb interest rates and ban the renewal of outstanding loans. The four other representatives have also co-sponsored the measure.
Norr, a Democrat representing Springfield, said the group was holding this unofficial hearing because he said Missouri House Speaker Ron Richard, R-Joplin, would not schedule committee hearings on the bill. The bill was referred to the Financial Institutions Committee in May, but no hearing is scheduled. Norr said House Republicans refuse to explain their objections to the bill.
"They don't tell us anything," Norr said. "These bills don't get to committee and if they do, they don't get out."
HB 150 would cap the annual amount of interest charged on a loan, or APR, at 36 percent, the same rate ceiling imposed by the federal laws regulating payday loans on military bases. It would also seek to ban the renewal of loans to allow people to pay off an existing balance with a new loan, a way of effectively increasing their interest rate.
Missouri law does not place any caps on interest rates and allows loans to be renewed up to six times, effectively creating an interest rate of 1,950 percent.
The hearings come two weeks after City Council passed an ordinance banning new payday loans businesses from setting up shop in the city for the next six months. According to Maneater archives, the council passed the ordinance to buy time to research how to regulate the industry at the local level. Norr said such moves on the local level were steps in the right direction.
"It's a good start," he said. "These things are out of control and they're hurting people."
One witness spoke on behalf of the payday loan industry. Randy Scherr, executive director of the United Payday Lenders of Missouri, said payday loans are a better financial option than the alternatives of a bank overdraft fee or a late payment charge on a credit card.
"It's an option," Scherr said. "It's a choice they can make as an alternative to overdraft charges."
UM-Kansas City economics and law professor Bill Black followed Scherr on the witness stand and hotly contested his arguments about the value of payday loans as a financial product. Scherr said banks charging up to 2,000 percent APR in the form of overdraft charges should not justify the high rates payday lenders do charge.
Scherr said payday loans do have a better interest rate than other financial charges if paid back on time, but the industry makes its money by extending and renewing loans, sending interest rates into the triple digits.
As of January, Missouri had issued more licenses to payday lenders than any other state except for Tennessee, with 1,315 licenses issued. Those statistics, complied by the state, figure this increased number of licenses to be a 44 percent rise from six years ago.
Comments (2)
2:51 p.m., Dec. 2, 2009
yknew said:
No matter the number of studies conducted or the number of testimonies provided by satisfied customers, the opposition will never agree that payday loans can be a desirable product and that people choose them over other options. Unfortunately, as long as there are people who abuse the product by taking out multiple loans for far more than their ability to pay back, it gives the opposition ammunition to go after payday loan companies. Those who have clearly used the product outside of what it was meant to be used for will tell their stories and profess that the big bad lender made them do it and that they couldn't possibly be responsible for their own actions. If payday lenders are driven out of the state, not only will more overdrafts and fees be paid to more banks but thousands of more jobs will be lost in the process. Including the state jobs and offices that were created in order to monitor and audit such institutions.
3:20 p.m., Nov. 17, 2009
jkursman said:
Could this "hearing" have been any more one-sided? What about the tens of thousands of consumers that choose to use the product and use it responsibly, saving their families hundreds if not thousands in bank and credit union fees, penalties, etc.? Were any of these individuals invited to speak? What about the dozens of Federal Reserve, Bretton Woods and FDIC researchers and professors from the nation's elite universities and colleges who have repeteadly shown the need for payday loans, refuted the arguments against them, and shown the negative impact on communities when payday loans are no longer an option? Bill Black can make all the arguments against payday rates he wants but it doesn't change the facts that payday lending at $15-$20 per hundred is 1/3 to 1/5 of the cost of the average single, overdraft check according to the FDIC ($27 fee on a $36 overdraft) Where exactly does Mr. Black suggest that people get the money to pay for unexpected expenses from car repairs to uncovered medical, dental, prescription and vet bills? By his logic, let's deny people the right to convenience and buying a can of soda from a vending machine or a ball game because those providers shouldn't be allowed to charge fees to cover the expenses of staff, distribution, sales tax, electricity, equipment, etc. Even better, let's get rid of mortgages. I don't mean the "predatory" kind that we all agree helped precipitate the current economic crisis and should be banned...no I mean all 30-year, 6% fixed mortgages...Why you ask? Well, in your first 10 years of payments....you're paying 90% interest and 10% to the principal so all mortgage should be illegal...right? Mr. Black and the rest of payday loan critics cannot provide a fair and equitable assessment of these products by continuing to refuse to compare them with the higher priced alternatives. You cannot evaluate products in a vaccuum!!! If paydayday lenders are driven out of the state, tens of thousands of Missouri families will have to pay more to banks and credit unions for overdrafts every year! And, if overdrafts are limited, individuals will pay even more in bounced checks to banks, credit unions and merchants....