Missouri is famous in the United States for consumer-friendly lending laws, but the industry of payday loan there is on the decline. In the 1990s, the state made changes in its usury laws allowing high interest on short term loans. Due to which, the number of licensed lenders increased, and most storefronts were occupied by them throughout the state. According to official figures, there were more than thirteen hundred licensed lenders in 2005. Over the last ten years, the number of lenders and the number of loans has reduced to more than half.
The decline is due to the trend of other types of loans and strict regulations. In Missouri, one cannot get more than $500 of payday loan and it is only up to 30 days only.. Most of the payday lenders have not closed their business rather they are focused on installment loans. In the case of a payday loan, the borrower must return it by two weeks with a very high interest. Sometimes the interest could reach up to six times. The situation of installment loans is different. The borrower can return it in installments over several months. However, the annual interest rate of installment loans is still very high. From 2005 to 2013, the number of installment lenders increased three times. Most them of them offer payday loans as well. There are almost one thousand licensed installment lenders operating in Missouri.
Things changed in 2016 as many installment lenders did not review their licenses. According to official reports, many lenders are choosing to close their stores due to drop in revenues. The actual reason behind the change is still unknown, but it seems that locals are avoiding to take risky loans.
Al Leving is a member of United Payday Lenders of Missouri. He runs the Loan Machine stores that stopped offering payday loans years ago. He said that people falsely believe that lending companies are making a lot of money. The reason why people closed their stores is no profitability. The short-term lenders who run brick-and-mortar stores are facing problems due to many factors. Some people believe that it is due to the overextension of the payday loan industry in the 2000s. Later, the country was hit by the recession, and many lenders lost their business. Other people believe that subprime credit cards and online installment loans were the real reason behind it. Over the last five years, licensed online lenders are increasing. In Missouri, there are almost two hundred such lenders.
Alex Horowitz works as a researcher at Pew Charitable Trusts where his focus is small dollar loans. According to him, the change is due to changing market trends rather than regulatory factors. However, lenders blamed federal legislators while talking to Post-Dispatch. Consumer Financial Protection Bureau is responsible for proposing rules related to the industry. Lenders argued that the rules proposed by the bureau would increase their problems like increased cost and reduction in customer base. The proposed rules bound the lender to do various other things which include providing more details about the payments, reducing rollovers of the loan, implementing measures for income verification and analyze borrower’s capacity to repay.
Al Leving said that new rules are forcing many lending companies to close their under-performing stores. Advance America is a major payday loan lender in the US. Its spokesman Horowitz said that they had to close many stores across the Missouri during 2016. According to the state records, lenders that had only one or two stores have closed down. The new law of the state requires lenders to have more capital and installment loans should be as minimum as five-hundred dollars. Horowitz said that new rules make things more difficult for the small lenders.
Companies that rely on the high profits of payday loans are worried about their future. So far it is not clear whether the new rules will be implemented or they would be revised. President Trump has also criticized CFPB which gives hope to many lenders that Congress or Trump Administration will not implement the new rules. On the other hand, CFPB is quite independent as compared to other institutions.
