By Emily Randall
Northeast News
Feb. 3, 2010

Kansas City resident Eliot Clark first took out a payday loan when his wife broke her ankle and, with her unable to work, the couple was unable to pay their bills.

Five years later, Clark is working to pay off five payday loans. Every two weeks he said, he pays $115 — $90 of which is interest and $25 of which pays down the principle amount. Clark said he has paid more than $10,000 a year in interest to the lender.

He, like many other Missourians, is struggling to get out of the debt trap that started with a high-interest, short-term loan.

Two proposed bills in the Missouri House of Representatives, sponsored by Rep. Mary Wynne Still, D-25, of Columbia, would reform the payday loan industry in the state.

One prohibits repeated renewals of loans to circumvent interest rate restrictions, prohibits lenders from loaning to a person within a week of his or her having taken another unpaid loan, limits the annual interest rate to 36 percent and requires lenders to give a borrower 90 days to repay a loan in full. The second bill prohibits providing or advertising payday loans in nursing homes.

Rep. John Burnett, D-40, has sponsored similar bills the past six years and is now a co-sponsor. Burnett, a Historic Northeast resident, said the issue hits close to home.

“It’s an issue near and dear to me because our community is impacted so much by the [payday loan] industry,” he said. “You don’t see three payday loan places per block on the Country Club Plaza.”

After more than seven years of working on this issue, Burnett said he is optimistic that this could be the year the bills pass in the House. Gov. Jay Nixon is on board with reform, as he stated in his State of the State Address Jan. 20.

“Missouri laws aren’t tough enough to protect folks caught in this downward spiral of debt,” Nixon said. “We need to stand up for them and pass meaningful payday loan reform this year.”

In 2008, 1,262 payday loan establishments had licenses in Missouri. The average loan, according to lender-reported data, was for $290, which resulted in an interest payment over two weeks of $47.95 — a yearly interest rate of 430 percent.

Brenda Procter testified before Reps. Kiki Curls, D-41; Curt Dougherty, D-53; Burnett and Still this past Thursday during a public hearing on the topic at Metropolitan Community College Business and Technology Campus. The state specialist and instructor for the University of Missouri Extension has worked to educate consumers about payday loans for 16 years.

She explained that people are uniformed about the purpose and terms of payday loans, and she noted some lenders loan to people with disabilities that prevent them from understanding the terms at all.

“One woman I talked to told me she thought payday loan places were ‘banks for poor people,’” Procter said. “Payday loan borrowers are often desperate. It’s a temptation that is hard to resist.”

She called for strong regulation, adding when other states, such as Arkansas, have done so, these businesses tend to pull out.

“Missouri ranks No. 5 in the U.S. on number of payday loan stores per capita,” she said. “That is not a ranking I think we should be proud of.”

Judith Popper, associate clinical professor of law at the University of Missouri-Kansas City, testified in support of the bill concerning nursing homes. She explained there are owners of nursing homes in Missouri who also run payday loan services, sometimes targeting their employees in the workplace. This situation, she said, encourages the employer to keep wages low, thus encouraging using loans, which leads to stress when a person falls down the debt ladder, which ultimately can lead to elderly abuse.

“Low morale that already exists dips even lower,” Popper said. “That was one of the reasons for capping interest rates at 36 percent for military families [through a 2007 U.S. law].”

During the public hearing, Tom Linafelt, director of corporate communications for QC Holdings, spoke on behalf of the payday loan industry. His company has been headquartered in Kansas City for 25 years and is the largest of these lenders in the state.

Linafelt said the “silent majority” of payday loan customers are able to pay off their loans in the two-week borrowing period and use the service for emergency situations, keeping them from otherwise incurring high fees from bouncing checks or incurring late fees on credit card bills.

“Payday loans actually save them money,” Linafelt said.

He added APR is not an appropriate way to assess these businesses, as the loans are short term, and, contrary to popular belief, lenders aren’t making outrageous profits. These companies, he said, earn a “modest” profit, while employing 10,000 Missourians and contributing $147 in tax revenue.

Rep. Curls, of Kansas City, said she had initially been strictly opposed to these lenders, but after talking to some constituents, sees that there is no other option for many poor people in Missouri who don’t have good enough credit to use banks and credit unions.

“Clearly there needs to be some alternatives,” she said.

Ryan Dold, field consultant for the Missouri Credit Union Association, explained 10 credit unions in the state have started offering short-term lending. Last year they provided 10,200 of these loans, however, because payday loan offices made close to 3 million loans, this is not much of a dent in the need.

“We are trying diligently to come up with a good payday loan alternative,” Dold said.