Springfield City Council Approves Payday Loan Requirements
After more than two years of debate and lobbying from advocates who say payday loans are putting already poor people into a “debt trap,” Springfield City Council took action on Monday night.
The council voted unanimously to impose more requirements on payday lenders and car title lenders, including an annual license fee of $ 5,000 that will need to be approved by voters in August.
Following recommendations from the finance and administration committee, board members approved the ordinance, which is similar to the St. Louis ordinance regulating short-term credit institutions. Kansas City has a similar order but charges $ 1,000 per storefront.
The license registration fee is meant to ensure that lenders comply with city requirements, offer alternatives to short-term loans, help people get out of the debt trap, and educate the community on the issue.
Before voting, some council members stressed that the city ordinance is only a local measure to protect consumers and that it will take action by the state legislature to cap interest rates. charged by payday lenders.
“I have no illusions that our vote tonight will have a significant impact on the payday lending industry,” said Councilor Andrew Lear. “We know that any real reform will require action at the state level.”
Councilor Phyllis Ferguson agreed.
“I want to appeal to our state lawmakers and ask them to take tremendous action that will have a real impact on what happens to people who live in poverty, desperation and cannot go elsewhere for loans “she said.
Mayor Ken McClure thanked Task Force Co-Chairs Brian Fogle, CEO of the Community Foundation of the Ozarks, and Janet Dankert, CEO of Community Partnership of the Ozarks.
McClure also called on state lawmakers to address the issue.
“The only real solution is probably state-level interest rate legislation,” McClure said. “I join my colleagues in urging the General Assembly to take appropriate action on this matter.”
Fogle, who co-chaired the task force, said he was happy the council passed the ordinance.
“We thought it would be very helpful at the local level, but nothing like what could be done at the state level,” Fogle said. “It was also one of our recommendations, that this continue to be a priority on the city’s legislative agenda.”
The average interest rate for payday loans in Missouri is 450% per annum, and many lenders do not allow borrowers to pay off the loan principal: it is either to pay the interest and fees, or to repay the entire loan.
Lenders justify the high rates and strict rules because they offer small loans without a credit check, which most banks cannot afford.
Advocates for Faith Voices of Southwest Missouri have urged Missouri lawmakers to cap the interest rate at 36% for many years, without success. They started pushing Springfield City Council to create the restrictions it could locally in 2018.
“It’s great news to hear that city council has passed the ordinance – not only passed it, but passed it unanimously,” said Mark Struckhoff of Faith Voices on Tuesday. “I think this will send a strong message to our community when it comes to voting.”
“The biggest win is definitely to cap the interest rate at 36%,” Struckhoff said. “I think there is a new energy that could be gained for it because Springfield has taken a stand on it.”
Susan Schmalzbauer, organizer of Faith Voices of Southwest Missouri, said the group is grateful to City Council, especially Councilor Mike Schilling for his “continuing championship of this ordinance” and for “Councilman (Craig) leadership. Hosmer ”, who chairs the Board of Finance and Administration Commission.
The new ordinance requires these businesses to post a notice near the store counter stating:
- That the establishment is a short-term credit institution and not a bank, a savings and credit association or a credit cooperative;
- Interest rates and fees charged;
- The annual percentage equivalent of the interest rates and fees charged per $ 100;
- A calculation of the amounts that would be paid on an initial loan renewed or rolled over after the initial term without any payment of principal or interest each time;
- Disclosure of the exact amount to pay off the loan so borrowers know exactly how much it takes to pay off the debt and the requirements for doing so;
- A warning that the default may result in loss of property or be used to garnish wages and checking and savings accounts; and
- A clear explanation of any state or federal law to terminate the loan agreement.
Short-term lenders would also be required to provide all interested clients and clients with a city-approved guide listing alternatives to short-term loans.
If business operators do not comply with these regulations, they can be subject to a fine of $ 100 to $ 500 and / or up to 180 days in jail.