#payday installment loans
Payday lending volume in Missouri has declined significantly in recent years, according to a state survey released this month.
On first appearance, the survey would appear to be good news to consumer groups that are fighting to limit the availability of high-interest, short-term loans. They argue the loans lure cash-strapped borrowers into cycles of debt.
But the survey numbers paint an incomplete picture.
While payday loan volume and the number of payday loan storefronts have dropped, the number of consumer installment lenders has surged.
Installment loans in Missouri are typically larger than payday loans and are repaid in installments spread across a period of at least 120 days, rather than being due in full after two weeks, such as with payday loans. Both types of loans can have high interest rates when charges are annualized.
“We have seen a massive increase in the number of products that aren’t classified as payday loans,” said Molly Fleming, who leads a payday loan reform campaign for the PICO National Network. She was heavily involved in a 2012 statewide initiative in Missouri to cap interest rates on loans at 36 percent. The measure, which faced well-financed industry opposition, failed to get on the ballot.
The biannual survey from the state division of finance showed the number of payday loans issued in 2014 had dropped 20 percent since 2012, from 2.34 million loans to 1.87 million loans. That’s well below the 2006 total of 2.87 million. And the number of lenders declined from a 2006 peak of 1,275 to 838, as of Thursday.
But the state doesn’t track consumer installment loans, a product that many lenders are moving to in the face of growing public criticism and regulatory scrutiny.
At the end of 2008, 569 companies were registered as installment lenders. Now, there are 980. Many storefronts across the state offer both products.
Missouri places no caps on interest rates for installment loans, and the state doesn’t track the volume of lending or the typical interest charged on the loans.
Some installment lenders do check borrower credit and income. Interest rates can vary from less than 36 percent, Fleming said, to well into the triple digits.
One of the state’s largest installment lenders, Advance America (also the nation’s largest payday loan company), offers online installment loans with annual interest rates just shy of 300 percent. According to its site. someone who takes out a $1,000 loan in Missouri and repays it in 13 twice-monthly installments would pay $838 in financing charges.
Many state legislatures in recent years have passed measures to rein in payday lending. While Missouri places few restrictions on payday loans, lenders have been wary of eventual action from the federal Consumer Financial Protection Bureau, which is expected to soon release draft regulations aimed at limiting payday loans and potentially other types of short-term loans.
As a result, many companies nationwide have shifted their focus to products that fall under less regulatory scrutiny, said Nick Bourke, a researcher at the Pew Charitable Trusts.
Though installment loans don’t come with the balloon payments that so many payday borrowers struggle with, large origination fees and high interest rates are still possible, Bourke said. “In a state like Missouri, the proper protections are not in place.”
Another of the state’s largest payday and installment lenders is Overland Park, Kan.-based QC Holdings. which has about 100 locations in Missouri.
In a filing with the Securities and Exchange Commission, the company noted that “higher fees and interest from our longer-term, higher-dollar installment products” was helping offset flagging payday loan revenue, which was in part due to the company’s efforts to transition some payday loan customers to installment loans.
According to the filing, the share of the company’s revenue and profit derived from Missouri dropped slightly through the first nine months of 2014 compared with the year before. The company’s general counsel, Matt Wiltanger, attributed the decline to the migration of customers online, to lenders that he said are often unlicensed and unregulated.
Wiltanger declined to discuss the company’s installment revenue, which had grown by 30 percent through the first nine months of 2014.
Payday lenders have long argued that the demand for their products reflects a lack of access to other forms of credit, and that cracking down on them won’t change the fact that millions of Americans are struggling to make ends meet. Lenders have asserted if federal rule changes make loans unprofitable, it will eliminate the only means of borrowing for some consumers.
The Consumer Financial Protection Bureau doesn’t have the ability to place interest rate caps on loans, but it can take other steps. Fleming hopes the bureau will require lenders to take into account a borrower’s ability to repay and remove their ability to access a borrower’s bank accounts, among other measures.
Last year, the Missouri Legislature passed a bill that would have prohibited payday loan renewals and would have lowered the fees that could be charged. Consumer advocates said the bill was riddled with loopholes and called it fake reform. Lenders didn’t bother to lobby against it, and Gov. Jay Nixon vetoed it.
According to state data, the typical payday loan is for $310 and carries an annual interest rate of 452 percent once fees are annualized. That translates to a little more than $17 for every $100 borrowed, assuming the loan isn’t rolled over, which leads to more fees. The typical loan is rolled over between one and two times.
A House bill has been filed this session that proposes capping annual interest rates for payday, installment and title loans at 36 percent. Fleming praised the measure, but acknowledged it’s unlikely to go anywhere.
Another bill passed in the House on Thursday could raise the maximum fee that can be charged on loans with terms of more than 30 days, which would include installment loans, from $75 to $100.
This map shows the locations of all licensed payday and consumer installment lenders in Missouri as of the end of January. It doesn’t account for online lenders. Zoom out to see other parts of the state. Read more about payday lenders shifting to installment loans here.
Maximum loan is $500; average loan amount is $310