State of Missouri looks to cap payday lending rates
The state of Missouri has proposed new limits that would cap payday lending rates. Many Americans turn to payday loans when they need cash immediately. Because they are such short-term loans, they generally come with high interest rates, which negatively impact some borrowers.
The Secretary of State has given the “Missourians for Responsible Lending” group approval to begin promoting a petition that seeks to place the issue on the 2012 ballot.
With the economy currently in tatters, payday lending has become a popular business venture, with several new financial institutions offering the borrowing option. These companies offer paycheck advancements and can get borrowers out of a tough bind – for example, giving them the resources they need to pay rent before they get their next check.
However, the sector has been criticized for the unreasonably large interest rates attached to payday loans. Considering the target audience for payday loans already has trouble managing their funds, the high interest rates put some borrowers even further in debt.
“This business makes money off of people that are in trouble for whatever reason,” said Rev. James Bryan, the group’s treasurer. “They just prey on those poor people that are in a desperate situation.”
Several states in the U.S. have already enacted caps on interest rates. Among 17 states, annual interest rates are limited to 36 percent, while the federal government has also placed limits on payday loans for military personnel. However, in Missouri, the average annual interest rate for short-term loans is 445 percent.
“It’s big companies taking advantage of the weak. People who aren’t able to make a house payment or pay a medical bill, they get trapped under this debt,” Bryan added.
Supporters of the payday lending industry suggest the issue is being exaggerated by opponents. In particular, the 400 percent interest rate is misleading, says Gerri Guzman of the Consumer Rights Coalition, as it represents the compounding of loans over the course of months.
“This ballot initiative is an ill-advised assault on all forms of consumer credit that, if passed, would hurt Missourians by eliminating their only real credit options and forcing them into more-expensive and credit-damaging alternatives,” Guzman explained.