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Payday Loan Initiative
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This Discussion Guide is part of Community Conversations at FOCUS St. Louis.  It is meant to initiate civil discourse around the policies that affect the St. Louis region; to hear each other’s perspective. As is the case with all public policies, this issue is complex and multi-faceted, with many stakeholders. Please keep this in mind as you discuss payday loan regulation in your community. 

Payday Loan Initiative

Payday loans, which usually range from $100-$500, are small, short-term loans that can be paid back with a borrower’s next paycheck. These small-dollar loans are not offered by banks as barrowers tend to be high-risk loan candidates that banks would be unwilling to serve. All that is needed to qualify for a payday loan is a source of income and a checking account. The Missouri Payday Loan Initiative, aimed to limit annual rates on short-term loans to 36 percent, including interest, fees and finance charges.

**** Update September 5 ****

On September 3rd, the group "Missourians for Responsible Lending" announced that they had given up their efforts to get the ballot proposal on the November 2012 ballot. Opponents of the ballot proposal had challenged the validity of signatures gathered to place the measure on the ballot, and supporters felt that they did not have the financial resources to continue the court battles.

Background:

In 2012, the Missouri Division of Finance found that there were about 1,040 payday loan businesses in Missouri, and 2.43 million payday loans had been issued during the year. Current law allows payday loan providers to charge interest rates up to 1,950 percent and allows for up to six loan renewals; the average annual percentage rate (APR) is around 431 percent.
 
Class action suits have been brought against two of Missouri’s largest payday lenders in Arkansas, California, Florida, Georgia, North Carolina, Pennsylvania, South Carolina, and in Missouri for disregarding regulations.  In the past ten years, many bills have been introduced on the federal, state, and local level, but none have been enacted. Currently, there are four pending bills in the U.S. Congress, and two were introduced in the recently concluded Missouri General Assembly session. The Payday Loan Initiative petition campaign kicked off in January of 2012.
 
Payday loan supporters—those fighting against the proposed initiative—see payday loans as short-term source of credit for those that cannot get it anywhere else, especially during emergency situations, and as an avenue for lower-income citizens to pay expenses. They believe that if the initiative passes and payday lenders are closed, Missouri will lose tax revenues and jobs. On the other hand, those in favor of the Payday Loan Initiative argue that payday loans often force borrowers to repeatedly renew or take out additional loans in order to pay the interest because loans are given without thought to the borrower’s ability to pay them back. The Consumer Federation of America believes that "the essential features of a payday loan make them a debt trap for borrowers;” they take advantage of the most financially vulnerable Missourians.
 
Estimates regarding the fiscal impacts of the payday loan initiative vary widely.  Initiative opponents argue that the initiative could cost Missouri $57 million in the first year, which is about 22 times higher than estimates from the State Auditor. Initiative supporters argue that the initiative would actually add no costs to state and local agency budgets.  They argue that the submitted cost estimates questioned by initiative opponents rely on the expertise of someone who previously testified against stricter lending industry regulation.

Who else is involved with this issue?

The main support for the ballot measure is a PAC called Missourians for Responsible Lending, consumer activists, and over 40 community organizations. A group called Give Missourians A Raise is also supporting the measure and helped collect signatures for the petition. The measure is opposed by Missourians for Responsible Government, Missourians for Equal Credit Opportunity, Stand Up Missouri, and Missouri Governor Jay Nixon.
 
Three Possible Perspectives:

Person A believes Missouri has some of the loosest credit lending laws in the country and supports the payday loan initiative to cap interest rates, curb the cycle of borrowing perpetuated by the industry, and control payday loan companies who can now charge as much as 1,950 percent interest.
 
Person B opposes the proposed initiative due to its misleading language. If passed the measure would discourage all small-dollar lending in the state, not just payday loans.  This could cost the state millions of dollars in lost tax revenue and force lenders out of business.
 
Person C seeks a compromise. The payday loan industry in Missouri requires regulation, but the proposed ballot measure goes too far.

 Discussion Questions:
  1. Which of the three perspectives in this scenario do you most closely align with A, B, or C?  Why?
  2. What would the long-term effects be of passing the initiative and limiting interest rates on short-term loans?
  3. Who in the Missouri population would be most affected (positively or negatively) by passing the initiative? Who would be most affected by not passing the initiative?
Links for further reading:
  1. Ballotpedia.org: Missouri Payday Loan Initiative (2012).
  2. Ballotpedia.org: Missouri Supreme Court tasked with untangling state initiative dilemma.
  3. Missourians for Equal Credit Opportunity (MECO) website.
  4. Missourians for Responsible Lending website.
  5. Missouri Supreme Court case Prentzler vs. Carnahan reply brief.
  6. Stand Up Missouri website.
  7. July 2009 Better Business Bureau executive summary: The Payday Loan Industry in Missouri: A Study of the Laws, the Lenders, the Borrowers and the Legislation.
  8. August 22, 2011 St. Louis Post Dispatch article: Two lawsuits filed over Missouri payday loan ballot measure.
  9. May 7, 2012 KSHB article: Are payday loans too difficult to pay?
  10. May 8, 2012 Kansas City Star Midwest Democracy article: Minimum wage, payday loan petitions submitted for Missouri ballot.
  11. May 18, 2012 PBS story: Need to Know story: Financial inclusion.
  12. May 29, 2012 PBS story: Need to Know story: Payday loans: An insider’s perspective.
  13. June 25, 2012 Kansas City Star article: Missouri high court hears challenge to three ballot initiatives.
  14. June 25, 2012 St. Louis Public Radio article: Mo. Supreme Court hears ballot initiative lawsuits
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