Springfield, MO City Council Plans to Regulate Payday Loans
Inside Subprime: Oct 19, 2018
By Lindsay Frankel
The Springfield, MO City Council will discuss a proposal to regulate payday loan and title loan companies, which critics say target vulnerable populations. The city is unable to place limits on the exorbitant interest rates associated with payday loans, since that responsibility is left to state lawmakers. The city instead introduced a draft ordinance modeled after existing laws in Kansas City and St. Louis.
The proposed regulations would require payday lenders in Springfield to obtain annual permits, educate borrowers about associated interest rates, and make consumers aware of alternative options for financial assistance. The city also plans to impose a permit fee on short-term lenders, but voters would need to approve the proposed fee.
The draft ordinance warns about the dangers of payday loans in Missouri, stating that these short-term loan products “result in serious financial hardships to some of (Springfield’s) citizens, particularly its elderly and low-income citizens, from which they cannot readily extract themselves; can perpetuate poverty; and can increase dependency upon public financial assistance, housing, health care and social services,” the draft ordinance reads.
Members of the Missouri Faith Voices and Springfield residents have attended earlier meetings of the Finance and Administration Committee to advocate for stricter regulations on payday lenders. Springfield resident Kathy Lutz previously explained how her family became trapped in debt as a result of using payday loans. “You must pay the principal and the interest at the same time to pay it off. That makes it virtually impossible once you get caught in the trap,” she said.
Payday loans in Missouri cost borrowers an average annual interest rate of 455 percent, according to Pew Charitable Trusts. Missouri allows up to a $225 charge on a $300 loan per two-week pay period, which is much higher than most other states.
In addition to requiring lenders to pay a $5,000 annual permit fee, the plan proposes collecting information about potential lenders’ business partners and any previous convictions, including violations of the short-term lending code. The proposed regulations are also intended to protect consumers by requiring businesses to provide examples of how interest rates and fees increase the amount of a loan. The posted notice must also state that “default may result in loss of property used as security for the loan and garnishment of wages and checking and savings accounts.”
The draft ordinance also proposes that short-term loan businesses should be required to provide customers with a pamphlet of alternative options for financial assistance. This would provide borrowers with the opportunity to seek help from nonprofit organizations or government assistance before taking out a risky payday loan.
For information on predatory payday loans, check out all of our Missouri Subprime Reports.