Study Reveals Missouri Payday Loans Negatively Impact Health

Inside Subprime: March 28, 2019

By Lindsay Frankel

According to a new study released by Human Impact Partners in collaboration with Missouri Faith Voices, payday loans in Missouri lead to chronic stress for borrowers that puts their health at risk. Missouri focus group participants reported a number of physical and mental health problems as a result of using payday loans, and the Missouri counties with the poorest health ratings also had a higher concentration of payday lenders than healthier counties.

Furthermore, the report identified a two-way relationship between health and the use of payday loans. Poor health affects a person’s earning potential by restricting employment opportunities and increasing medical costs, which creates the financial desperation that is often a precursor to the use of payday loans.

Missouri residents use payday loans at twice the national average rate. This is due in part to a low minimum wage and a high percentage of unbanked residents. Borrowers’ average income falls just under $25,000, and nearly one quarter of Missourians lack access to traditional financial services or use alternative financial services such as payday loans.

Unfortunately, Missouri has extremely permissive laws regarding payday loans, and lenders are allowed to charge up to 1,950% APR on a $315 payday loan. The average cost to borrow $300 for 5 months in Missouri is $563, according to Pew Charitable Trusts. The high interest rates trap borrowers in debt, leading to poorer health outcomes for borrowers. As the report notes, “Payday loans exacerbate financial stress by increasing the likelihood someone will miss bill payments, delay health care spending, or use food stamps, or even file for bankruptcy.” For most borrowers, taking out a payday loan leads to more debt and increased stress rather than financial relief.

At a press conference for the release of the study, Springfield resident Patricia Reynolds shared her personal experience with payday loans. The 73 year-old retired nurse took out her first payday loan in 2010 and spent eight years trapped in debt, taking out repeated loans that she was not able to pay off. Thanks to a small rescue loan from University Hope, Reynolds had help getting out of debt last year. She recalled the devastating impact of the ongoing financial stress on her health. “I was stressed. I had high blood pressure,” she said. “I can go to bed now and not worry about seeing dollar signs going by (and) worrying about that. I can sleep, whereas before I couldn’t.” But payday lenders in Springfield continue to target Reynolds with offers for new loans.

Reynolds is not alone. Since the program launched, University Hope has assisted about 65 people in relieving payday loan debt. “That is just a drop in the bucket of what the need is in Springfield,” said retired pastor Bob Perry, who helped found the program.

Lawmakers have done little to curb predatory lending in Missouri. Payday lenders charge 450 percent APR on average. Many lenders don’t allow borrowers to make payments towards the principal of the loan unless they can pay off the entire loan, which perpetuates the debt cycle.

While only state lawmakers can cap interest rates, councilman Mike Schilling has sponsored a proposed ordinance that would regulate payday lenders in Springfield. The ordinance would require clearer communication of interest rates and fees to borrowers. Lenders would also be required to obtain an annual permit for $5,000. Schilling hopes to bring the proposed ordinance to City Council after the April election.

For more information on Missouri subprime loans, see our city and state financial guides including ColumbiaIndependence , Jefferson CityJoplinKansas City and St. Louis.