Missouri payday lenders switch to installment loans | Policy


The volume of payday loans in Missouri has dropped significantly in recent years, according to a state survey released this month.

At first glance, the survey would appear to be good news for consumer groups struggling to limit the availability of high-interest, short-term loans. They argue that loans lure cash-strapped borrowers into cycles of debt.

But the survey figures paint an incomplete picture.

As payday loan volume and the number of payday loan storefronts have plummeted, the number of consumer installment lenders has surged.

Installment loans in Missouri are generally larger than payday loans and are repaid in installments over a period of at least 120 days, rather than being due in full after two weeks, as is the case with installment loans. salary. Both types of loans can have high interest rates when fees are annualized.

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“We’ve seen a massive increase in the number of products that aren’t classified as payday loans,” said Molly Fleming, who leads a payday loan reform campaign for the national PICO network. She was heavily involved in a 2012 Missouri statewide initiative to cap loan interest rates at 36%. The measure, which faced opposition from well-funded industry, did not pass.

The state finance division’s biannual survey showed the number of payday loans issued in 2014 fell 20% since 2012, from 2.34 million loans to 1.87 million loans. This is well below the 2006 total of 2.87 million. And the number of lenders fell from a 2006 high of 1,275 to 838 on Thursday.

But the state is not tracking consumer installment loans, a product that many lenders are turning to in the face of mounting public criticism and regulatory scrutiny.

At the end of 2008, 569 companies were registered as installment lenders. Now there are 980. Many storefronts across the state carry both products.

Missouri imposes no caps on interest rates for installment loans, and the state does not track loan volume or the typical interest charged on loans.

Some installment lenders check the borrower’s credit and income. Interest rates can range from under 36%, Fleming said, to well into the triple digits.

One of the state’s largest installment lenders, Advance America (also the nation’s largest payday loan company), offers online installment loans with annual interest rates of just under 300%. According to his websitesomeone who takes out a $1,000 loan in Missouri and pays it off in 13 semi-monthly installments would pay $838 in finance charges.

In recent years, many state legislatures have passed measures to limit payday loans. With Missouri placing few restrictions on payday loans, lenders are wary of potential action by the federal Consumer Financial Protection Bureau, which is expected to will soon publish a draft regulation aimed at limiting payday loans and potentially other types of short-term loans.

As a result, many companies nationwide have focused on products with less regulatory scrutiny, said Pew Charitable Trusts researcher Nick Bourke.

While installment loans don’t come with the lump sum payments that so many payday borrowers struggle with, hefty origination fees and high interest rates are still possible, Bourke said. “In a state like Missouri, the proper protections are not in place.”

Another of the largest payday and installment lenders in the state is Overland Park, Kansas. QC Holdingswhich has about 100 locations in Missouri.

In a folder with the Securities and Exchange Commission, the company noted that “higher fees and interest from our longer-term and higher installment products” helped offset lower payday loan revenue, which was partly due to Company’s efforts to transition some payday loan customers to installment loans.

According to the filing, the share of the company’s revenue and profits from Missouri declined slightly in the first nine months of 2014 from a year earlier. The company’s general counsel, Matt Wiltanger, attributed the decline to customers migrating online, to lenders he said are often unlicensed and unregulated.

Wiltanger declined to discuss the company’s tiered revenue, which grew 30% in the first nine months of 2014.

Payday lenders have long argued that demand for their products reflects a lack of access to other forms of credit, and that cracking down on them won’t change the fact that millions of Americans are struggling to make ends meet. . Lenders have claimed that if federal rule changes make lending unprofitable, it will eliminate the only way to borrow for some consumers.

The Consumer Financial Protection Bureau does not have the ability to cap interest rates on loans, but it can take other actions. Fleming hopes the bureau will require lenders to consider a borrower’s ability to repay and remove their ability to access a borrower’s bank accounts, among other measures.

Last year, the Missouri legislature passed a bill that would have banned payday loan renewals and reduced the fees that could be charged. Consumer advocates said the bill was riddled with loopholes and called it a bogus reform. Lenders didn’t bother to lobby against it, and Governor Jay Nixon vetoed it.

According to state data, the typical payday loan is $310 and carries an annual interest rate of 452% after annualized fees. This translates to just over $17 for every $100 borrowed, assuming the loan is not rolled over, which incurs more fees. The typical loan is rolled over once or twice.

A bill was tabled this session which proposes annual interest rate cap for payday, installment and title loans at 36%. Fleming praised the measure, but acknowledged it is unlikely to go anywhere.

Another one bill passed in the House on Thursday could raise the maximum fee that can be charged on loans with terms longer than 30 days from $75 to $100, which would include installment loans.

This map shows the locations of all licensed payday and consumer lenders in Missouri as of the end of January. It does not take online lenders into account. Zoom out to see other parts of the state. Learn more about payday lenders turning to installment loans here.

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