Payday loans require reform
December 23, 2008
A conversation about something as specific and concrete as payday lending can quickly turn philosophical, and political.
Reform of the practice, which derives its name from the need to live paycheck to paycheck, is on some Missouri legislators' to-do list again. And lines in the sand are already being drawn.
Liberals argue passionately that society should create protections to keep the poor from being sucked into a vortex of debt.
Conservatives ask why society should stop or limit legitimate business, especially when that business clearly states its rules for lending money.
Libertarians argue for the government to stay out of the way and let borrowers and lenders sort it out themselves.
Strong arguments and supportive evidence fly on all fronts. Now, though, with Gov.-elect Jay Nixon already on the record about the need for reform, we see a great opportunity for bipartisan work to regulate the industry without shutting it down.
Missouri's laws are some of the loosest in the nation when it comes to the lending. Other states have found ways to put restrictions on lenders without killing profits.
A 2007 report from the Missouri Division of Finance to the General Assembly looked at eight states contiguous to Missouri and found all eight forbid "renewals" of payday loans.
Not only does Missouri law allow the practice, it allows six renewals per loan. That creates escalating interest that critics say can reach 1,900 percent.
Other states cap interest and fees at much lower rates, often 36 percent of the total money loaned.
State Rep. Sara Lampe, D-138, is already working on legislation requiring lenders to inform borrowers of their balance every three months. Other industry experts have called for more education for consumers when it comes to payday lending and legislative nudges toward credit unions to expand short-term loan offerings as alternatives to payday loans.
It's time for Missouri legislators to soften the political posturing -- and proselytizing -- and look to what other states have done.
Or, look to the federal government for guidance.
The U.S. Congress decided in 2006 to offer payday loan relief for military personnel by capping interest rates at 36 percent. The measure was co-sponsored by then-Sen. Jim Talent, R-Missouri.
That brings us to repeat a question we've asked in this space before:
If reform was appropriate for servicemen and women, can't Missouri's poor have at least some level of protection, too?
Source:http://www.news-leader.com/article