The Missouri Senate gave first-round approval Wednesday to a measure that would end payday loan renewals and allow for extended payback plans, but some senators still don't think it goes far enough in regulating the controversial industry.
The bill, sponsored by Sen. Mike Cunningham, R-Marshfield, would increase payday loan licensee fees from $300 to $500, require additional rules for posting the annual interest rates of the loans, and would prohibit borrowers from rolling their debt into a new loan.
The Senate has to pass a final roll call vote before the bill can be sent to the House.
The rollovers in particular and the loans broadly have been harshly criticized for targeting the poor with predatory practices, trapping them in endless cycles of debt. Supporters of the loans say they are the only short-term loans available for people that aren't approved by banks and credit unions.
"I think it's a huge step whenever you stop rollovers," Cunningham said after the vote. "It's a huge step we have taken, and we will see where it goes."
John Lamping, R-Ladue, called the measure a "small step" toward imposing stricter regulations on the payday loan industry, but also said it was a compromise within the industry and not between the industry and its chief opponents. He has introduced bills in the past to create a database of the loans, so lenders could not give loans to borrowers with outstanding debts elsewhere but has not been successful.
"From what I gathered, (the bill) makes for an ever-so-slightly better situation than consumers currently find themselves in," Lamping said. "Getting stuck in the financial trap will be a slower process, it will take longer for it to happen."
During the floor debate, Sen. Maria Chappelle-Nadal, D-University City, proposed an amendment to require $1 from every loan transaction be sent to the education foundation formula, but Cunningham and others argued the extra fee would be passed on to borrowers. It was rejected by a 23-8 vote.
Nadal and other Democrats pointed to the fact that payday loan stores are often located in poor, urban areas, and the borrowers often lack basic knowledge about financial matters. They also admitted the loans are sometimes the only option for people that need to borrow money to pay bills or feed their family.
"One of the things I see is people going from one payday loan to the next and the next, it's an endless cycle," Nadal said. "Many of the people who are borrowing from these different entities don't have the education that we would desire."
The extended payment plans would allow the borrower to payback the loan over up to four months without accruing additional interest. During the payment plans, the lender could not give the borrower another loan until the first was paid off, and the borrower can enter into only one payment plan with a lender in a given year.
"I'm trying to protect your people, so they don't pay more for these loans," Cunningham told Nadal.
Over the past few years, opponents of the payday loan industry have moved their attacks out of the legislative arena and into the initiative petition process. In 2012, they came up one district short of gathering the sufficient number of signatures to get the issue onto the ballot. Their initiatives would cap the total amount of annual interest charged for the loans at 36 percent, a law the industry argues would force it to leave the state.
For its part, the industry fought the petition effort fiercely, creating its own petitions with conflicting and confusing language and challenging the validity of signatures in the courts.
The coalition of liberal and faith groups that pushed the petitions in 2012 have gotten similar language approved for circulation this cycle but have yet to decide if they will move forward with collecting signatures. They are also watching the legislation but do not think Cunningham's bill achieves the regulation they would like to see.
"I don't think that it accomplishes any significant improvements, in some ways it probably adds to the problem," said Rev. Jim Hill of MO Faith Voices, one of the groups that have organized on the issue. "I don't think it accomplishes what we are interested in, limiting fees and interest to reasonable levels."
Hill said the groups that gathered signatures last time are still in the process of deciding what to do this year but will likely have to come to a consensus soon. The groups are considering how the petition push will fit into their larger political priorities, which also include Medicaid expansion, and if they can make the push during a midterm election, which are traditionally more conservative electorates.
"We would have to begin pretty quickly if we were going to get on the ballot this year," Hill said. "We have the systems in place and have a large base of volunteers committed to this... we are far better prepared to do it now and more aware of the types of challenges and opposition we will face."