Missouri may be on its way to enacting stricter payday lending laws.

The legislature’s Subcommittee on Short Term Financial Transactions has outlined recommendations in a report to state Speaker of the House Todd Richardson culled from a recent hearing that included testimony from a credit union executive.

Nonprofit and consumer groups have advocated that interest rates and fees be capped at 36 percent APR. Payday lenders, on the other hand, argue that the cap would close brick-and-mortar lenders and force consumer to choose less regulated options. Banks and credit unions argued that such a cap would make it difficult to offer short-term loans unless they were subsidized. Among those testifying was Michael O'Brien, director of policy and government relations for St. Louis Community Credit Union.

According to the Heartland Credit Union Association, which represents CUs in Kansas and Missouri, O’Brien told lawmakers about the short-term lending services SLCCU offers to members and residents within the city of St. Louis City and the county.

“Our alternative to payday lending is called the Freedom Loan. We introduced it back in 2007. It’s a $500 revolving line of credit with an all-in APR of up to 36%,” O’Brien said in his testimony. “Borrowers have up to 90 days to repay each advance. We don’t pull credit. Instead, we simply require that they have a checking account with us in good standing for at least 90 days. So they have to have a relationship with us. Plus, there’s a forced savings component: 10 percent of what they borrow gets put into a savings account that is available to them once they pay off the loan.”

Michael O’Brien, director of policy and government relations for St. Louis Community Credit Union, testifies before Missouri's Subcommittee on Short Term Financial Transactions about payday lending.
Michael O’Brien, director of policy and government relations for St. Louis Community Credit Union, testifies before Missouri's Subcommittee on Short Term Financial Transactions about payday lending.

In its report, the committee advised that legislators “tread lightly,” since the Consumer Financial Protection Bureau has not yet provided any clear final action on payday loans. The committee made the following recommendations:

  • Require all short-term lenders to comply with the Fair Debt Collection Practices Act
  • Require that all loan recipients receive contact information for the Missouri Department of Finance
  • Reduce renewals to two per loan for all short-term loans
  • Require that the maximum interest and fees be capped at 35 percent of the loan amount for payday loans (a percentage of the loan amount, not APR)
  • Allow borrowers to pay outstanding loans by means of extended payment plan.

Missouri Rep. Steve Helms, a Republican, introduced H.B. 2567 with several of these provisions included. The legislation is directed towards “[l]enders, other than banks, trust companies, credit unions, savings banks, and savings and loan companies.” The bill will come to the House Financial Institutions Committee sometime after the legislature returns from spring break on March 26.

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