People in need of cash will face higher fees for some consumer loans under a law enacted by Missouri legislators when they overrode a veto by Gov. Jay Nixon.
The cost to consumers could be an additional $25 or $35 when they take out a loan, plus a similar charge each time they refinance or restructure it.
Yet there seems to be a difference of opinion about who precisely will be affected by the new law.
Nixon contends it could allow payday lenders to pocket more money. Yet the new law is not meant to target payday loans as they are defined under Missouri statutes. At issue are loans that are repaid in installments over multiple paydays — perhaps several months or years.
To some consumer advocates, there is little distinction.
“It’s high-cost debt that’s marketed as a bridge or financial fix but, in reality, this creates a debt trap that is very hard to get out of,” said Diane Standaert, senior legislative counsel for the Center for Responsible Lending, a Durham, N.C.-based nonprofit that opposes what it describes as “predatory lending practices.”
Missouri has 930 business locations licensed to offer payday loans and 943 offering consumer installment loans, according to an online database kept by the Missouri Department of Insurance, Financial Institutions and Professional Registration.
Many businesses are licensed to offer both.
So perhaps Nixon should be given some linguistic leeway when he expresses his frustration with the veto override.
“Raising fees on payday loans — it’s hard for me to see how that’s going to move our economy forward,” Nixon said in an interview last week.
Yet the new law is not meant to affect payday loans. Under existing Missouri law, a payday loan can be no larger than $500 and can run only from 14 to 31 days.
The new law applies to loans of 30 days or longer. It doubles the maximum loan origination from 5 percent to 10 percent of the principal but leaves in place an existing fee ceiling of $75. Those fees are in addition to whatever interest is charged.
The change in law applies both to “consumer installment lenders” and “small loan companies.” Small loans must be for at least $500 and can include dealer-initiated debts for items such as dental work or vehicle sales that are serviced by financing companies. Consumer installment loans have no minimum dollar amount but must run for at least 120 days and include at least four equal payments.
Because the new law keeps in place the $75 fee ceiling, lenders can charge the full new 10 percent fee only on loans of up to $750, but can squeeze out a few extra dollars in fees on loans of up to $1,500.
Lobbyists were left scratching their heads when Nixon, in his written veto message, cited the $1,500 loan threshold while denouncing the measure for increasing “the fees that payday, title and consumer installment lenders can charge.”
“These are not payday loans. We have no interest in this bill,” said Randy Scherr, a lobbyist for the United Payday Lenders of Missouri.
Chris Liese, a lobbyist for the Missouri Finance Institute, which represents installment lenders, said he also had nothing to do with the legislation, though he acknowledged: “This section would help us.”
The lobbyist behind the fee increase was Harry Gallagher, who represents the Missouri Financial Services Association. Gallagher said his group of about 10 businesses includes some direct consumer lenders but is primarily composed of companies that buy consumer debt from retailers such as furniture stores. The loans are typically for $1,500 or more, he said.
Originally, Gallagher wanted to raise the fee ceiling to $100 or perhaps even $150, which would have corresponded with a doubling of the fee percentage from 5 percent to 10 percent of principal. Under that scenario, a lender could have gotten a $150 fee off a $1,500 loan instead of current maximum of a $75 fee.
But Gallagher learned that the Missouri Bankers Association was pursuing a similar measure that raised its maximum fee to $75 for short-term cash advances. He said he stuck with the $75 fee for his clients out of a concern than anything higher could invite a veto.
As it turns out, Nixon vetoed the legislation anyway.
The Republican-led Legislature overrode that veto Sept. 11 without much debate about the higher fees.
But Gallagher hardly counts it as a victory.
“This bill basically does nothing,” he said.
Gallagher added: “We were hoping to get a higher cap on it. When we couldn’t, I took what I could get. Maybe next year, or the year after or when Jay Nixon isn’t governor anymore we’ll be able to raise it to $100 or $150 to where it offsets the expense of putting a loan on the books.”