Lenders, watchdog groups talk impact of new regulations
JEFFERSON CITY, Mo. — Two weeks ago, Missouri lawmakers had one of the most consequential veto sessions in state history, overriding 10 bills — a modern record — rejected earlier this summer by Gov. Jay Nixon.
Most of the attention, lobbying and news coverage focused on a handful of bills sitting squarely in the middle of fundamental political debates. The tax cut, House Bill 253, swallowed much of the news for the summer and Democrats and Republicans argued over the economic viability of the package. A sweeping gun bill, House Bill 436, divided the majority caucus as well as the minority over the power of state regulations over federal law enforcement. Even a bill seeking to cap punitive damages relating to Doe Run Mining Company highlighted the political divide.
But as most of the nearly 12-hour session dealt with the big bills, a few smaller pieces moved through. One of those bills was House Bill 329, which deals with some relatively minor changes in regulations for financial institutions.
HB 329 was vetoed by Gov. Nixon, in part, because he claimed it would allow payday lenders to increase their fees. House Democrats stood in a party-line vote against the bill and several took the floor during debate to argue that such an increase was a squeeze on the poorest Missourians for profit-driven motivations.
Except, according to the United Payday Lenders of Missouri, the bill didn’t do that at all. In fact, lobbyist for the UPLM, Randy Scherr, said the veto letter from Nixon had him “scratching his head.”
“[HB 329] doesn’t deal with us at all,” Scherr told The Missouri Times. “We’re regulated under a different statute, so none of the changes, none of those provisions in 329 applied to us.”
But Scherr’s confusion doesn’t end there. The provision in HB 329 that Nixon said would allow rates to go up is almost identical to a smaller Senate bill, SB 254. Nixon signed SB 254 into law 10 days after vetoing the identical provision in HB 329.
“[HB 329] was the same as [Senate Bill] 254,” Scherr said. “But it had some extra stuff in it dealing with private trust companies and funeral trusts. But where the governor thought payday loans was going to go up, it was the same law he’d already signed. The House bill was just 254 with more stuff included.”
Both SB 254 and HB 329 placed a $75 cap on “origination fees” for loans exceeding 30 days. The difference, and the reason it was vetoed according to the Governor’s office, was that HB 329 would have allowed a fee of up to 10 percent or $75 of the principal loan amount, a doubling of the original five percent.
Here is where the law gets tricky.
Payday lenders are regulated under RsMO 408.500. Payday lenders may not give out loans for a period exceeding 31 days, so the 30-day-or-longer language would technically apply to them, and permit them to begin collecting higher fees. And according to RsMO 408.500.02, they would be among the licensed businesses permitted to change their fees under the new statutes.
Scott Holste, press secretary for Nixon, said these fees are typically seen in consumer installment loans, not payday loans, but that many businesses licensed as payday lenders were also licensed to issue consumer installment loans, which are regulated under a separate state statute. Businesses licensed as consumer installment lenders will see be affected by the bill, it allows them to increase their fees up to either 10 percent of the loan or $75.
Diane Standaert, senior legislative council for the Center for Responsible Lending, said many payday lenders are transitioning to consumer installment lending, and that the largest payday lenders in Missouri, like King of Kash, are licensed as consumer installment lenders, effectively allowing them to increase fees on loans that do not fall under the purview of payday lending law. Other national payday lenders, like Advance America, operate within the state as consumer installment lenders. According to Standaert, this allows the lenders to operate under different laws, which exploit burrowers.
“Laws like [HB 328] allow lenders to add fees onto more fees,” Standaert said. “All it does is allow people to be caught in unsafe, unsustainable debt. It lends itself to the culture of repeat burrowing, and repeat burrowing is debt and repeat burrowing is the majority of the business for these companies.”
A payday loan is strictly regulated. In Missouri, payday loans must be between 14 and 31 days, and may not exceed $500. Payday lenders can charge up to 75 percent interest across the life of a loan and its extensions. Scherr said that the new bill would change only businesses with licenses other than payday lending.
“Missouri is the wild, wild west in terms of payday lenders,” Standaert said. “Basically you have payday lenders giving out larger, longer loans and charging 300 percent interest rates and huge fees.”
Scherr told The Missouri Times that payday lenders and consumer installment lenders were licensed, audited and regulated differently and he could not identify immediately any UPLM members that were licensed as consumer installment lenders.
“We may have some members with those licenses, but I don’t know of any,” Scherr said. “Those businesses are totally separate. The bookkeeping is separate, the regulations, the licenses, everything. So to say that this bill is letting payday lenders change their fees, that’s just not true.”
Scherr said payday lenders were unfairly targeted because of their high annual percentage rates (APR). Current state law requires that all fees and interest charged by payday lenders be reported as a single APR number. Other lending institutions like title lenders and traditional banking organizations report these fees separately, making their APRs lower.
“If we could report our APR the way a normal bank does, it wouldn’t be so high,” Scherr said. “You get people saying ‘oh you’re charging so much,’ but under the law, it’s possible for a bank loan to actually be more expensive to the consumer, but because they report their APRs differently, it doesn’t seem that way.”
Jessica Hodge, principle of Hodge Consulting LLC, lobbied in the past on behalf of VeriTec Solutions, a software company that designs real-time databases for the purposes of regulating payday lenders. Hodge said the payday lending industry in Missouri was not in fear of serious regulations any time soon.
“They are pretty strong in this state and I don’t think they have any real fears of being regulated,” Hodge said. “The payday lending industry is pretty sneaky, so they’re usually able to find ways to operate their businesses even when new regulations come into effect.”