Breaking the predatory lending debt cycle — call for state policy
Springfield’s payday loan industry is thriving off its continuous exploitation of the working poor. Despite the passage of a local ordinance regulating predatory lending in 2020, people are still suffering from never-ending debt cycles; therefore, action needs to be taken at the state level to achieve economic justice for Missouri’s most vulnerable citizens.
As the cost of living is rising at a disproportionately high rate compared to income levels, citizens are struggling to pay for healthcare, food, rent, education, and childcare. Presently, two out of five people in the U.S. need to borrow money when faced with an unexpected expense of only $400, according to a 2019 report from Human Impact Partners. Mainstream banks do not provide loans to credit-challenged individuals, which forces the most vulnerable borrowers to go to predacious payday lenders.
Missouri’s Division of Finance Commissioner, Mick Campbell, conducted the 2023 Payday Lender Survey and reported 330 payday lending businesses active in the city of Springfield. Unlike mainstream banks, payday lenders charge exorbitantly high interest rates, which pushes working poor borrowers into severe debt. Commissioner Campbell’s survey also reports that Missouri allows interest rates to be 75% of the initial loan amount, which for a two-week loan, equals a 1,950% APR.
According to Better Business Bureau Researcher Robert Teuscher, Missouri’s interest rate is the highest allowed by any of the 43 states with caps on interest. In comparison, Missouri’s eight contiguous states only allow APRs of 390%-403%. Furthermore, Missouri allows borrowers to renew or “roll over” their loans up to six times, while the eight nearby states prohibit loan renewals. Teuscher’s study also highlights that Arkansas has banned payday loans entirely. Just seven months after Arkansas’ ban, the number of payday lenders in operation decreased from 237 to 33, accordingto a New York Times report.
It is time for the state of Missouri to take ownership of the financial exploitation of the working poor. Imposing a cap on interest rates of 36% would help establish a more equitable opportunity for borrowers and decrease the negative outcomes associated with personal debt. Additionally, following the models of its contiguous states, Missouri should seriously consider policies that completely ban payday lending or prohibit borrowers from renewing loans. As proven in nearby states, these laws on payday lending decrease the profitability of their businesses, which has led to the shutdown of numerous predatory lenders.
The state of Missouri needs to enact strict predatory lending laws if it wants to promote equality under the law and is truly committed to the general welfare of every citizen.
Chloe Harnar and Akinori Minagawa live in Springfield and are students at Drury University.
This article originally appeared on Springfield News-Leader: New regulation needed in Missouri to prevent predatory lending
