JEFFERSON CITY – Missouri's House on Tuesday passed a bill that would change the payday loan industry, a measure supporters called "true reform" designed to protect borrowers of the small, unsecured loans while opponents denounced it as a sham that would do nothing to help people escape debt.
House members voted 112-39 in favor the bill that would eliminate renewals on payday loans and lower the amount of interest lenders can charge. The measure heads to the Senate, which passed a similar bill earlier this year.
Under current law, loans can be renewed up to six times and lenders can charge up to $75 in fees for a $100 loan. Payday loans can be up to $500 and last from 14 to 31 days.
The House bill would eliminate loan rollovers and cap interest and fees at 35 percent of the initial loan amount. Lenders also would be required to "conspicuously post" in their lobby the amount of fees and interest charged per $100 loaned.
"If you want to see reform to the payday loan industry, you will vote for this bill," said Rep. Sandy Crawford, R-Buffalo. "It addresses all the major issues."
Opponents said the bill doesn't solve the problem of borrowers securing loans from multiple lenders at the same time. They argued for more restrictions on lenders to ensure they aren't loaning money to clients who can't afford the interest and fees.
"The bill is a wolf in sheep's clothing that will keep people trapped in debt and moving into bankruptcy to the detriment of all of us," said Rep. Jill Schupp, D-Creve Coeur.
The House and Senate must now agree on an identical version of the bill before lawmakers adjourn May 16.
The key difference between the two versions is the cap on interest and fees. While the House bill would lower the current limit to 35 percent, the Senate version would remove the cap altogether. The Senate sponsor said market rates should determine the interest on a loan.
Both versions of the bill would allow borrowers to sign up for additional time to pay back a loan without penalty. Lenders only would be required to provide brochures and notices about the plan's availability, but it would up to the borrower to invoke the option before the loan's maturity.
Borrowers could only enroll in the no-penalty extended payment plan with an individual lender once every 12 months.
There were 934 licensed payday loan lenders in the state in 2012, according to the Missouri Division of Finance. The division estimates that between October 2011 and September 2012, there were 2.34 million loans issued with an average value of $306 at an average interest rate of 455 percent.