JEFFERSON CITY A battle looms over how muchlenders can charge for payday loans in Missouri " and it promisesto be an expensive one.
A coalition of religious groups and civic organizations havebegun collecting signatures to get a measure on the state's 2012ballot that would limit the cost of short-term loans. Voters wouldthen have the option of capping annual interest rates on thoseloans " which would include payday and car title loans " at 36percent.
Opposing the measure is a Kansas City-based nonprofit calledMissourians for Responsible Government. Over the course of threemonths, the group has contributed $600,000 to a committee set up tooppose the ballot initiative. Because Missourians for ResponsibleGovernment is a nonprofit, it is not required to disclose wherethat money came from.
Some of the nonprofit's money has gone to the company ofinfluential Republican political consultant Jeff Roe and to two lawfirms involved with a lawsuit challenging the ballotinitiative.
Missourians for Responsible Government was founded by PatrickTuohey, a communications specialist who also runs Market andCommunications Research Inc. and publishes the Missouri Recordblog. Neither Tuohey nor Roe responded to repeated calls and emailsseeking comment. The treasurer of the committee receiving the money" called Missourians for Equal Credit Opportunity " declined tocomment.
The pro-initiative side has a political committee calledMissourians for Responsible Lending. It has raised around $50,000and spent about $10,000, mostly on legal fees.
Molly Fleming-Pierre, policy and development organizer for apro-initiative group called Communities Creating Opportunity, saidno one expects supporters to raise nearly as much as groups whooppose the measure.
Instead, Flemming-Pierre said, supporters will rely on a networkof groups, specifically faith-based groups, to get the initiativebefore the voters and ultimately get it approved.
"We're never going to win the fundraising battle, and we knowthat," she said. "But that doesn't mean we won't win the policybattle, and the heavy commitment of the faith community is howwe'll do it."
Katie Jansen Larsen, state organizer with Metro CongregationsUnited, said her organization's 35 religious congregations in theSt. Louis area have pledged to collect thousands of signatures toget the measure on the ballot. The coalition will need to collectaround 90,000 signatures divvied up between six of the state's ninecongressional districts to get on the ballot.
"We got involved in this effort because our pastors startedsaying, 'This is wrong and we have to do something about it,'" shesaid.
In general, a payday loan is a small, single-payment loancustomers repay when a paycheck is received. Payday loan amountstypically range from $100 to $500.
A borrower writes a personal check to the payday lender, whoholds the check for 14 to 31 days. At the end of that period,either the check is deposited, the borrower returns with cash toreclaim the check or the loan gets renewed and the borrower paysadditional fees.
In 2010, there were about 1,040 payday loan stores in Missouri,according to the Missouri Division of Finance. Missouri is secondonly to Tennessee among its neighbors in the number of licensedpayday lenders. Some 2.43 million payday loans were made inMissouri in 2010.
A Missouri Division of Finance study conducted in 2007 thatfound the average age of consumers taking out payday loans was 43with an income of a little more than $24,000. The average interestrate for a payday loan in Missouri is 445 percent annually, whichis higher than the national average of 391 percent.
Randy Scherr, executive director of the trade association UnitedPayday Lenders of Missouri, said looking at annual percentage rateson payday loans is misleading because the loans are not issued onan annual basis. When you look at how much it costs to operate apayday lending institution, a 36 percent annual interest rate capwould not even allow many lenders to pay the rent, he said.
He points to an industry-sponsored study by the Ernst Young accounting firm indicating that it costs the lender $13.89 tomake each loan. A 36 percent APR would translate to just under$1.50 on a two-week loan of $100, Scherr said.
"It's an expensive loan to extend to people," he said. "That'swhy banks don't want to mess with them."
And ultimately, fees applied to small, short-term loans used topay for emergency needs are still much smaller than bank overdraftfees or late bill payment penalties, Scherr said.
"These are loans for people without a lot of options," he said."And it is their choice."
But consumer groups say the real issue is the cycle of debt manyborrowers get stuck in. If people can't pay their loan on its duedate, they will pay a new set of fees to roll over the loan againand again, Flemming-Pierre said.
Under Missouri law, payday lenders can renew a loan six timesand collect up to 75 percent of the loan amount in interest.
The Missouri Division of Finance says the average loan is rolledover 1.6 times. None of the states neighboring Missouri allowpayday loans to be renewed.
The payday loan industry targets people who are in financialdistress, Flemming-Pierre said, and charges unreasonably high feesand interest rates. In states that have instituted interest ratecaps, borrowers have not lost options for short-term lending, shesaid. She also points out that until the mid-1990s, Missouri had ausury cap of 28 percent APR.
Flemming-Pierre said supporters of the cap had no choice but toturn to the ballot after facing frustration year after year in thestate Legislature. She points to the large contributions to bothRepublicans and Democrats over the years as part of theproblem.
The largest donor from the payday loan industry over the last 10years has been Kansas-based QC Holdings Inc., which has doled outnearly $400,000 to politicians and campaign committees. QC operatesabout 500 offices nationwide, primarily under the Quik Cashname.
"We saw the Legislature was never going to pass tougherrestrictions," Flemming-Pierre said. "So we will put it before thevoters."
Whether it actually gets to the ballot remains an openquestion.
In 2008 and 2010, 72 initiative petitions were approved forcirculation by the Missouri secretary of state's office. Only sixof those actually made it to the ballot.
And a lawsuit challenging the proposed payday loan ballot issuecould still derail the proposal. The lead plaintiff on that lawsuitis John Prentzler, an executive with QC Holdings.
Scherr said those in the industry are worried about the issuegoing before voters.
"Most people have never even been in a payday lendingestablishment, and most don't fully understand how they work," hesaid. "People in our industry are very worried about how this willimpact their business, their employees and their customers."
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