Herald-Whig View

Payday lenders decline; need for reform doesn't

Posted: Apr. 17, 2017 5:10 pm

PAYDAY loan companies are on the decline in Missouri, but still handled 1.2 million loans last year.

Once again, we call on lawmakers in Missouri, Illinois and Washington, D.C., to pass more reasonable limits on high-interest lenders to protect unwary customers.

The Associated Press reports there are about 653 payday lenders in Missouri today, down from 1,335 in 2005. These businesses offer two-week, lump-sum loans that could be rolled over as many as six times. They charge triple-digit interest rates, which often overwhelm borrowers who fail to do the math.

While it is good to see fewer payday loan operations, reports unfortunately indicated that other types of lenders have been lured to the state because of lax consumer lending laws.

Some payday lenders didn't go out of business; they simply changed their business model slightly. Installment loan providers are paid back over four months or more and still charge ultrahigh interest rates.

A few lenders offer both payday and installment loans. And online installment lenders are winning a share of the market, without having a bricks-and-mortar presence.

Lenders defend their practices, saying they offer cash to people who have few options. One Hannibal loan operator said a few years ago that some clients were in tears, worried his shop would be closed by federal and state rules that were then under consideration.

However, a Pew Charitable Trusts survey conducted in 2012 seems to indicate there are other options for people who need money.

Eighty-one percent of respondents said they would cut back on expenses and simply avoid taking out a loan if there was no subprime lender available. Another 62 percent said they would delay paying some bills, while 57 percent would borrow from family or friends, and an equal percentage would sell or pawn possessions.

Last year the Consumer Financial Protection Bureau asked Congress to impose some reasonable safeguards on the industry. Lenders would have to conduct a "full-payment test" as part of the loan process. If a borrower would have to repeatedly renew a loan to get it paid off, the loan would not be allowed.

In addition, lenders would have to warn borrowers before any attempt to debit a bank account.

However, lobbyists for the $3.5 billion subprime lending industry said these rules would bankrupt them.

We agree that bankruptcy issues should be discussed, but believe the customers are the ones in need of protection.

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