State reps hold local hearing on payday loan reform
Five state representatives were present, including all of Columbia's.
Nov. 17, 2009
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.