Payday Loans in Missouri: Subprime Report
Sitting on the border of the Midwest and the Southern United States, Missouri’s vast grassy plains and stately Ozark mountains are a sight to behold. But behind the state’s natural beauty lies a dark underbelly of poverty. In fact, just under 930,000 (15.3%) of Missouri residents live below the poverty level.
To make matters worse, 28.3% of all Missouri jobs are considered “low wage,” which means they pay less than what an individual needs to make to stay above the federal poverty level. With so many Missourians working overtime to make ends meet, it’s no wonder that many families turn to payday loans and title loans in times of need.
Payday Loans in Missouri
A payday loan is a type of short-term, high interest loan that’s often taken out by borrowers with bad credit or no credit, as most payday lenders do not require a credit check. Instead of using a borrower’s credit as collateral, payday lenders have borrowers fill out a check for the loan amount, plus fees and interest, and date it in the future – typically on their next payday. If the borrower fails to pay back the loan amount by the end of the loan term, the lender will cash the check. Because of the short terms on payday loans, which usually are 1 to 2 weeks long, many borrowers find it difficult to pay back the money on time, and may be forced to take out another loan, with more fees and interest, in order to cover the cost of the first loan. This is how payday borrowers can easily get trapped in a cycle of debt, taking out loan after loan while interest stacks up.
Payday lending is legal in the state of Missouri, and the laws tend to favor lenders. Of all the states in the country that allow payday loans, Missouri has some of the softest regulations. By law, payday lenders in Missouri must provide you with a copy of the agreement that includes all of the information about the payday loan transaction. This document must include a notice about the terms and conditions of the loan, and your lender is required to have you read them before signing the document. Additionally, borrowers must be notified on the day they take out the loan that the payday loan transaction can be cancelled by the end of the next business day.
As of April 2017, there were 653 reported payday lender storefronts in Missouri. Due to the easy availability of payday lenders in the state, Missouri residents took out 1.62 million payday loans in 2016. The leniency of the laws have resulted in the state showing highest payday loan APRs in the country.
Number of Payday Lenders: 653
Maximum APR: 1950%
Number of Payday Lenders: 522
Maximum APR: 403%
The History of Payday Lending in Missouri
Payday loans in Missouri can be traced back to the 1930s, when lenders began using a post-dated check as collateral for short-term loans in order to get around usury and credit disclosure laws. In the 1980s, state regulators sought to end predatory payday lending schemes by placing interest rate limits on payday lenders. This worked until 1998, when the Missouri Legislature eliminated the usury cap altogether. After that, payday lenders were effectively allowed to charge as much interest as they wanted, with no legal consequences.
In 2001, Missouri Auditor Claire McCaskill issued a performance audit of the payday loan industry, and made a note of the lack of interest rate caps. McCaskill’s audit revealed that it was common for payday lenders in Missouri to charge an annual percentage rate (APR) of 391%, and while McCaskill did not recommend a cap on interest rates, she did recommend a cap on the number of loan renewals a customer could make.
Following McCaskill’s audit, the Missouri Legislature ended up passing laws that made it easier, not harder, for payday lenders to squeeze money out of their customers. One such law allowed payday lenders to charge fees and interest of up to 75% of the principal amount of the loan. The result? Under this law, the APR on a 2-week loan could add up to an extraordinary 1950% APR — the highest allowed in all states that allow payday lending.
Additionally, the Missouri law allows borrowers to renew their payday loans up to six times, which only serves to trap desperate people in a predatory debt cycle.
Twenty years after payday lending first became legal in Missouri, the industry has grown significantly. As a result, Missouri has become one of the leading states for payday lenders to operate in, and the regulation is only getting less strict. This patchwork of payday lending laws keeps changing, and not for the benefit of Missouri consumers.
- Maximum Loan Amount:$500
- Loan Term:14-31 days
- Maximum Finance Rate and Fees:Not Specified (No borrower shall be required to pay a total amount of accumulated interest and fees in excess of 75% of the initial loan amount on any single authorized loan for the entire loan term and all authorized renewals. Otherwise, interest is set pursuant to small loan law which provides that parties may set rate by contract.)
- Finance Charge for 14-day $100 loan:$75
- APR for 14-day $100 loan:1950%
- Maximum Number of Outstanding Loans at One Time:No more than $500 to any one lender at one time
- Rollovers Permitted:Six (borrower must reduce principal amount of loan by 5% or more upon each renewal)
Title Loans in Missouri
Similar to a payday loan, a title loan allows borrowers to use their vehicle as collateral for a loan. Title loans are typically for a lot more than your average payday loan, as they are based on the value of the car. While payday loans can trap you in a cycle of debt, title loans may be even more dangerous. If you fail to pay back your loan on time, the lender has the right to repossess your vehicle.
Taking out a title loan in Missouri is never a good idea. Title loans are legal in Missouri, governed by Missouri Revised Statute 367.500. Under this law, lenders are required to take into account the borrower’s ability to make the payments before lending any amount. However, there still is no requirement to see proof of income from the borrower. Basically, if you say you can pay it off, that’s good enough for the lender. In fact, many title lenders would rather see you default on your loan, because they can make more money selling your car than they can from interest and fees on your loan.
The History of Title Loans in Missouri
In 2001, the Missouri State Auditor’s Report found that annual fees on title loans in Missouri ranged from an APR of 183% to 377%. Common fees charged by a Missouri title lender on a $500 loan were 25% a month or 300% annually, which adds up quickly.
That same audit showed an estimate of 70% of title loan borrowers earned less than $25,000 a year — which explains the need for “quick cash.” The audit also found that on average, title lenders make 3.5 times more renewal loans than new loans each month because that is where they make the most money — the more interest they add on, the more they bring in.
As of 2013, Missouri had more than 343 title loan locations licensed under its title loan statute, making 77,861 loans at a volume of $81,131,162. The maximum amount of money a Missouri consumer can take out from a title lender is $5,000, and Missouri is one of a few states with no limits on the rates that title lenders can charge. In Missouri, a title loan term length must be longer than 30 days, and after a borrower’s third loan renewal, they must pay 10% of the loan upfront, or they will not be able to renew the loan a fourth time.
In Missouri, title loans are limited in size, and require principal reductions by the borrower in order for the loan to be eligible for renewal. A Missouri title lender must be licensed by the Division of Finance and may not use the title to a mobile home as security for a title loan. To make a title loan in Missouri, the lender must make the loan in compliance with the title loan law and is subject to disclosure obligations, as well as term and renewal limits — this is an attempt to protect you, the consumer, from falling into a predatory lending trap.
Title loans in Missouri are dangerous, so make sure you explore your options before you jump into a deal you can’t dig yourself out of. If you do end up taking out a title loan in Missouri, know your rights under the law and don’t sign anything until you understand the terms and conditions.
Regulating Payday and Title Loans in Missouri
Lenders must follow laws regulating the payday and title loan industry in Missouri, but unfortunately, even though these laws are lax, many lenders still skirt them in order to make more money. If you suspect a title or payday lender in Missouri is not following the rules and regulations, report them. Not only are there resources available to help get you back on your feet, but taking action against a predatory lender can help prevent other people from being taken advantage of.
How to Report a Lender in Missouri
In 2010, the Missouri Division of Finance got at least one call a day from consumers complaining about a payday or title lender. Since the Missouri Division of Finance has been reporting data, there have been more than 6,000 payday loan related calls documented.
If a payday or title lender in Missouri has harassed you, or isn’t following the rules and regulations, you can report them by filing a complaint with the Missouri Division of Finance. Simply submit a complaint form by email, mail, or fax.
The Missouri Division of Finance information
- Address: 301 W. High Street Jefferson City, Missouri 65102
- Phone: (573) 751-3242
- Website: https://finance.mo.gov/
Outside Help for Payday and Title Loans in Missouri
Aside from the Missouri Division of Finance, you can find help and guidance with Stand Up Missouri. As a nonpartisan coalition, Stand Up Missouri is dedicated to educating residents of Missouri about their right to informed credit choices. Stand Up Missouri also works to protect your access to safe and affordable traditional installment loans.
Guides to Payday and Title Loans in Missouri Cities
You know payday and title loans in Missouri are a problem. But what about at the city level?
Check out these payday and title loan guides for the following cities in Missouri…
- “Missouri Poverty Facts” Missouri Community Action Network. Accessed March 9, 2017. http://www.communityaction.org/missouri-poverty-facts/
- “State Debt” Ballotpedia. Accessed February 13, 2017. https://ballotpedia.org/State_debt
- “Experian’s 2016 State of Credit Report” Experian. Accessed June 5, 2018. LiveCreditSmart.com
- “2012-2016 American Community Survey 5-Year Estimates, Income” U.S. Census Bureau. Accessed June 5, 2018. https://factfinder.census.gov
- “The Payday Loan Industry in Missouri” BBB. Accessed March 6, 2017. https://www.stlouisfed.org/~/media/Files/PDFs/Community%20Development/PaydayLoanReport09color.pdf
- “Missouri payday lenders shift to installment loans” St. Louis Post-Dispatch. Accessed March 6, 2017. http://www.stltoday.com/news/local/govt-and-politics/missouri-payday-lenders-shift-to-installment-loans/article_ca8d5c45-d05d-59f9-ace9-b67b339ba0c4.html
- “Show-Me Predatory Lending” Where Does the Money Go?” University of Missouri. Accessed March 6, 2017. http://extension.missouri.edu/cfe/wcap/Show-MePredatoryLendingReport.pdf
- “Missouri State Information” Payday Loan Consumer Information. Accessed March 6, 2017. http://www.paydayloaninfo.org/state-information/33
- “Auto Title Loans, Illegal in Most States, Even Riskier in Georgia” Consumerist. Accessed March 6, 2017. https://consumerist.com/2009/01/26/auto-title-loans-illegal-in-most-states-even-riskier-in-georgia/
- “Missouri lenders find ways to avoid title-loan regulations” St. Louis Post-Dispatch. Accessed March 6, 2017. http://www.stltoday.com/business/missouri-lenders-find-ways-to-avoid-title-loan-regulations/article_bb9ee593-ca73-5a62-aa1a-115824889903.html
- “Payday and Car Title Lenders Drain $8 Billion in Fees Every Year” Center for Responsible Lending. Accessed February 15, 2017. http://responsiblelending.org/sites/default/files/nodes/files/research-publication/crl_statebystate_fee_drain_may2016_0.pdf
- “Car Title Lending: Driving Borrowers to Financial Ruin” The Center for Responsible Lending and The Consumer Federation of America. Accessed March 6, 2017. http://www.consumerfed.org/pdfs/driving_borrowers_rpt.pdf
- “Car Title Lending: The State of Lending in America & its Impact on U.S. Households” The Center for Responsible Lending. Accessed June 8, 2018. http://www.responsiblelending.org/state-of-lending/reports/7-Car-Title-Loans.pdf
- “Driven to Disaster: Car-Title Lending and Its Impact on Consumers” CFA. Accessed February 15, 2017. http://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf
- “Car Title Loan Law Chart” Loans.org. Accessed March 6, 2017. http://loans.org/auto/studies/car-title-state-laws
- “Title Lenders” Missouri Division of Finance. Accessed March 6, 2017. http://finance.mo.gov/consumercredit/titlelenders.php