Without public hearing, bill to benefit Missouri payday lenders reaches Parson’s desk

A bill that could give Missouri payday lenders the opportunity to trap borrowers in a cycle of debt under a different name has reached Gov. Mike Parson’s desk.

With no hearing or public scrutiny because of limited access to the Capitol building, the bill was rushed through both chambers shortly after April 27, the day the legislature returned to resume a session already truncated by the novel coronavirus.

There was no indication Tuesday whether Parson would sign or veto the bill.

The measure would prohibit local governments from levying fees on traditional installment lenders, if those fees aren’t also applied to other banking entities regulated by the state.

While traditional installment lenders are different from payday lenders under Missouri law, both offer unsecured loans and can charge triple-digit interest rates. Payday lenders often look for a lump-sum repayment, while traditional installment loans can be paid back within a couple of months.

It is not uncommon for payday lenders to hold both payday and traditional installment lender licenses in Missouri, which is permitted under state law, according to Lori Croy, the spokeswoman for the Missouri Department of Commerce and Insurance (DCI).

As states and cities crack down on payday lenders who charge exorbitant interest rates, many are migrating to the less regulated sphere of traditional installment loans. The same trend has played out in Missouri, even though it has some of the least stringent regulations for payday lenders in the country.

“It’s going to gut municipalities’ ability to regulate (the lenders),” Paul Woodruff, executive director of the financial education center Prosperity Connection in St. Louis, said of the recently passed provision.

Woodruff, who also runs traditional installment lender RedDough Money Center, advocated for a St. Louis ordinance to charge a permitting fee to payday lenders that would help the city enforce its short-term lending regulations.

Rich history of scandal

Kansas City has a similar ordinance, but a much richer history of payday lending scandals. It was home to an illegal $2 billion payday loan operation led by Leawood businessman and race car driver Scott Tucker.

The industry also has produced the bankruptcy of a Kansas City company that financed payday lenders, indictments against two American Indian tribes, a $613 million penalty against U.S. Bank and the imprisonment of another local payday lender.

The bill was tucked into a noncontroversial measure that in its original form merely allowed the state treasurer to invest more in linked deposit program for small businesses. The two-page bill ballooned to 55-pages by the time both chambers passed the measure last week. It also included provisions about local government pension programs, family trusts, life care contracts, credit unions and mortgage broker licensing.

It’s common for lawmakers to try to pass their bills by tacking them on to other measures as amendments. But the practice comes with an unspoken rule: the add-ons are accepted only if they’ve had a hearing.

This time, the standalone bill, sponsored by the chair of the Senate Insurance and Banking Committee, was never scheduled for a public hearing. And without a hearing, there was no staff analysis of its fiscal impact.

“We didn’t hear from consumer groups about the risks associated with it, we didn’t hear about who benefits and who loses,” state Rep. Peter Merideth, a St. Louis Democrat, said.

Merideth was the only lawmaker on the Missouri House floor to raise the possibility that the bill may benefit payday lenders.

“This pops up on the floor and we ask questions but we don’t really get answers,” Merideth said. “There are no experts on the floor and even the bill sponsor (in the House) doesn’t really know what it does.”

Merideth noted the bill also allows lenders to claim attorneys fees if they prevail in lawsuits against local governments. Cities that attempt to enforce the regulations would have to consider whether a loss in court and big payout is worth the risk, Merideth said.

“It’s absolutely going to have a chilling effect,” he said.

‘Misinformed legislation’

The amendment sponsor, Rep. Curtis Trent, a Springfield Republican, said the provision had nothing to do with payday lenders and was a “minor tweak” requested by the Division of Finance, which is under DCI.

Trent said lenders aren’t currently allowed to charge a convenience fee to consumers when they use their debit card to make a payment in person.

“If the lender can’t charge a convenience fee, then they are not going to offer that service,” Trent said on the Missouri House floor. “...This would make it uniform across all the different types of payments that are allowed so the consumer will have maximum flexibility of where and how they want to pay.”

Back in Trent’s district, the city of Springfield recently passed a measure regulating payday lenders and charging them a permitting fee. Voters would ultimately have to approve the measure in August, according to the Springfield News-Leader.

And lawmakers defending the amendment could not list examples of traditional installment lenders that would be affected by the change.

In an email, Croy said the division had not requested a measure be passed but “did provide input to industry representatives regarding language that could address this situation” of varying convenience fees.

“This measure in no way affects payday lenders or allows them to charge any additional fees,” Croy said. “Since the measure only affects traditional installment lenders, any limitations placed on payday lenders by a political subdivision, like Kansas City, would not be nullified.”

Woodruff said that not all traditional installment lenders are predatory; some are credit unions, banks, community development financial institutions and nonprofit organizations. While the average interest rate of payday lending is 460 percent, his traditional installment lender offers a 120 percent rate and takes pains to look at whether a consumer can pay.

There is a lack of education in the public and among lawmakers about accessing credit on the secondary market, he said.

That leads to misinformed legislation, he said.

“It’s clearly targeting what St. Louis City and what Kansas City has done,” Woodruff said, of the Trent’s amendment. “And there’s municipalities that are trying to do the same thing.”

This story was originally published May 13, 2020 at 5:00 AM with the headline "Without public hearing, bill to benefit Missouri payday lenders reaches Parson’s desk."