Contrary to what its backers contend, a bill that sped through the Missouri Senate does almost nothing to protect consumers who resort to payday loans.
Short-term lenders, on the other hand, would benefit considerably from its final passage.
Sponsored by Sen. Mike Cunningham, a Rogersville Republican, Senate Bill 694 bans rollovers — loan renewals accompanied by accumulating interest and fees. Current law permits six rollovers a year. The proposal also requires lenders to offer each borrower once a year an extended payment plan with no additional interest or fees.
Perhaps deliberately, the rollover ban and the extended pay period ignore a central reality of payday lending: The business depends on repeat customers. A report last year by the federal Consumer Financial Protection Bureau found that almost 90 percent of storefront payday loans go to borrowers with seven or more transactions a year.
As is done in other states, lenders in Missouri could adroitly sidestep a rollover ban by having borrowers pay off one loan and immediately take out another. For the chronic payday consumer, a once-a-year extended pay period would provide only a short breather from mounting debt.
In exchange for the appearance of being reined in, lenders would receive something they want: removal of the provision in state law that caps interest and fees at 75 percent of the loan’s original principal.
The current cap amounts to a ridiculously high annual interest rate of more than 1,950 percent and helps to explain why the average annual percentage rate on a payday loan in Missouri is 454 percent, more than 100 percentage points higher than the national average.
Honest reform would lower the annual rate of interest that could be accrued on a loan, not remove even the flimsiest of restrictions.
Records at the Missouri Ethics Commission show three payday loan companies donated a total of $3,000 to Cunningham’s campaign committee at the end of last year. When he filed his bill early this session, the famously vigilant industry offered no significant protest.
The Missouri House should reject the measure just passed by the Senate. It is a gift to the industry disguised as reform, and its passage would make genuine protections much harder to obtain.