As I indicated here, Missouri is considering a 36% rate cap for payday loans.   Currently, payday lenders often charge 400% and 500% interest on such loans that are financially devastating to the poor and the working poor (Missouri’s 9% “usury” cap does not apply to payday loans).

Bill 2116 is now pending before The House Committee on Financial Institutions, which is chaired by Republican State Representative Mike Cunningham. This important bill will not get a hearing unless Mr. Cunningham decides to grant a hearing, at his discretion.  This single bill, HB 2116, “combines two bills filed by Representative Mary Still in January into one bill dealing with both annual percentage rates (APR) caps and restrictions of nursing homes offering payday services to employees.”

Here’s how you can help. Please consider writing to Mr. Cunningham today, requesting him to hold a hearing regarding Bill 2116, to consider capping Missouri payday loans at 36% interest. Your letter can be two sentences, or you can spell out your reasons in more detail.

Mr. Cunningham can be reached at mike.cunningham@house.mo.gov . His snail mail address is:

Representative Mike Cunningham
201 West Capitol Avenue, Room 411-2
Jefferson City MO 65101
Office Phone: 573-751-3819
Fax: 573-526-1888

Even a small number of emails, faxes or letters will make a big difference.  If you want to be part of a citizens’ movement cap interest rates of payday loans at 36%, please take a moment to write to Mr. Cunningham.  I can’t emphasize enough that your single email, fax or letter could be the difference between this bill getting a hearing, or nothing being done.

As for the detailed reasons for imposing a rate cap, see my earlier post on the proposed legislation. I have also inserted (below) a letter written by John Campbell (an attorney with whom I work).  Thank you so very much for considering this. Please do consider sending me a copy of any emails you send to Mr. Cunningham.

[Letter from John Campbell to Mr. Cunningham]

Representative Cunningham:

I am writing to request that the House Committee on Financial Institutions grant a hearing on Bill 2116, a bill to limit the interest rate on payday loans to 36%.

I have extensive personal experience with payday loans.  I am an attorney, and I spend much of my time representing consumers.  In the course of my practice, I have talked with dozens of payday loan borrowers.  Their stories are remarkably similar.  Payday loan borrowers are generally low wage earners with high school degrees or less, and they are typically in desperate situations when they go to a payday lender.  In my experience, payday loans lead to create a debt cycle that is difficult for most borrowers to escape.

Let me point out first that I have existing claims against payday lenders, and it is not in my best financial interest to reduce payday lending profits.  It will make it less likely they can pay what may be, in many cases, substantial claims.  However, my financial interest aside, it is my moral and economic conviction that payday loans are bad for individuals, for other businesses, and for our economy as a whole.  I share this to tell you that my position is not one of convenience, but one that has been forged over the course of dealing with payday borrowers and investigating the payday loan industry.

The going interest rate for Quik Cash, the largest payday lender in Missouri, is 521%.  This interest rate, coupled with the payday loan process, leads to long term debts.  Although this is the opposite of what payday lenders routinely advertise (their commercials suggest payday loans are short term solutions for emergencies), my examination of their business practices has revealed otherwise.  Payday lenders in Missouri routinely loan up to 80% of a person’s concurrent income.  In other words, if someone earns $500 in a two week period, the lender will loan up to $400.  This means that at 521% interest, the borrower will owe about $480 in two weeks, when the loan comes due.  To secure the payment, the payday lender requires the borrower write a post-dated check good for their next payday.

Such a loan is often made despite knowledge that the borrower is broke, or has a negative balance in their checking account, at the time the loan is made.  No lender reasonably expects that the borrower will be able to pay in excess of 90% of his or her income when the loans come due.  In reality, the payday loan is modeled on the fact that the borrower will not pay in full.  Instead, the borrower is encouraged to renew the loan. He pays the interest, and perhaps a minimal amount in principal.  Two weeks later, he will still owe almost all of his bi-weekly income. The cycle should end when the maximum number of renewals is met according to Missouri law, but it does not. Payday lenders have crafted a loophole.  When renewals are not available, the borrower is asked to bring in his or her entire paycheck.  They “pay the loan off” and then the lender makes a new loan, the same day, for the amount they already owed.  In this way, the interest is paid over and over, but the debt doesn’t go down.

If a person ever does fall behind, the interest runs, and the debt grows quickly.  I have personally seen high interest loans result in bankruptcies, additional payday loans, and absolute desperation. Payday lenders routinely sue their customers.

That said, I don’t believe payday loans should be capped at 36% simply because they prey on the most vulnerable among us.  I believe they should be capped because they are bad for our economy.  Easy credit led to the subprime collapse.  Payday lending is the last bastion for similar irresponsible lending. Because payday borrowers know that if they do not return to the payday loan store the check they provided will be deposited (possibly leaving them penniless or over-drafting their account),they respond by going to the store religiously to renew their loan.  Meanwhile, since other lenders and creditors are less aggressive in their collection and don’t have a proverbial leash (the post-dated check) around the necks of their customers, those businesses don’t get paid.  People should not lose their home because they have payday loans, but they do.  Local merchants should not get shorted because of payday loans, but they do.  It is for this reason that so many BBBs, credit unions, and other businesses oppose payday loans.

Put simply, the only businesses that like payday lenders are payday lenders.   In this regard, whether people seek to protect individuals or they seek to protect the marketplace, payday loans as they exist in Missouri today are a bad idea. An interest rate of 36% will still be a full four times the rate that individuals can charge one another when they loan money.  It will still allow for profit, but it will do so in a way that is reasonable for everyone involved.

I know that payday lenders have powerful lobbies. I’ve met QC’s full-time lobbyist and I took the deposition of QC’s president, but I can assure you that there are many of us who are motivated to support politicians who cap payday loan rates.  That includes members of the plaintiffs bar and the defense bar. This is a truly bipartisan issue.  The only bad position for a politician is to be publicly exposed as a supporter of 500% loans.  This is a true no-brainer, and I ask you to hold a hearing on this bill, so that it can later be voted into law.

Thank you for your consideration.  I look forward to your response. I can be reached in person at the number below, or my personal cell phone is 314-XXX-XXXX. I would welcome the opportunity to talk with you.