Finding Your Civic Voice on Predatory Lending

Missouri has some of the laxest state regulations in the country on short-term loan companies offering quick-cash, payday, installment, or title loans — the Show-me State allows an average APR of over 450% per loan. Calls for industry reform are not new, and several Missouri cities have stepped up to regulate short-term loan businesses within their boundaries, but in late 2016, the St. Louis City Board of Alderman drew a line in the sand.

Recognizing that these companies’ lending practices “can result in serious financial hardships” to citizens who were often the most financially vulnerable in the first place, the board passed an ordinance, which voters overwhelmingly approved, to impose annual registration fees of $5,000 per establishment, create a regulatory body to inspect loan businesses, and, most importantly, provide consumers with a guide on alternatives to short-term loans. City citizens sent a resounding message that predatory lending is not welcome in the Gateway to the West.

In Columbia, 23 short-term loan establishments operate in city limits, peppering the Business Loop in the first and second wards, where median income falls below Columbia’s average. This past June, the Columbia City Council received reports summarizing the short-term loan industry in our city. Aside from regular business licensing requirements, Columbia doesn’t have any regulations specific to the short-term loan or installment loan industries, although the report acknowledged that better regulation would serve the goals of Columbia’s Strategic Plan in addressing social equity.

Council commented that residents living paycheck to paycheck need these loans to cover living expenses — in other words, city council is concerned that payday loans are filling a critical need (a fair point) but it’s not yet promoting meaningful alternatives. It could be because the people who mostly use payday loans have more barriers to civic participation. After all, it’s hard to make your voice heard as a citizen when you can’t take off time to vote or attend a  city council meeting because you’re working around the clock to barely make ends meet.

There’s no doubt that short-term loans are in high demand — these businesses wouldn’t exist with a steady stream of customers looking for small amounts of cash to cover rent, utilities, or other loans — but inflated interest rates and hidden costs trap people in a cycle of debt that’s nearly impossible to escape. Unfortunately, because of existing regulations that exclude those with a poor credit standing, often low-income earners, from traditional loans, predatory lenders have filled the void.

Complete elimination of these businesses could leave hundreds of residents without viable options to meet their monthly expenses. What St. Louis has done, however, is compile all the available alternatives to payday, title, and installment loans into one guide, including resources on credit counseling and utility and rent assistance. The city’s commitment to education and awareness can help direct consumers away from predatory lending businesses. The same can be done in Columbia.

As a community, we can encourage our city leaders to commit to a practice like this. City council hosts public comment periods before every council meeting, but payday loan regulation hasn’t been part of the community discussion for months. We can use our  voices collectively to bring the change we want to see. At the very least, engaging in this effort could reveal that there are too few fair, short-term loan options in Columbia — and that information is valuable too.

As individuals, we can also promote alternative lending sources for a vulnerable group of consumers that can’t find a better way to buy groceries for their kids before their next paycheck clears. There are resources available in Columbia to help residents avoid taking payday loans in the first place — financial management programs at the Family Impact Center or utility assistance at CMCA, for example — but they can’t fix the whole problem, because it doesn’t exist in a vacuum. Underemployment, lack of affordable housing, or the catch-22 of low credit scores can all contribute to a person’s reliance on short-term installment loans.

Speaking up on specific issues like predatory lending can make a genuine difference — especially if we speak with a clear message.

Brianna Lennon is a former assistant attorney general and elections integrity coordinator for the State of Missouri. She practices at the Law Office of Mike Campbell and blogs about civics for CBT.