Missouri is in the crosshairs of a national debate over payday loans. This is partly because the industry is huge and wields a lot of political power in the state, but also due to a growing, grass- roots consumer movement. Payday lenders say they provide necessary alternatives to more costly bank overdrafts and credit card debt, but consumer activists aren’t buying it, and are working to provide alternatives for short term loans.
One reason the payday loan industry is able to thrive in Missouri is because it has a market. Thousands of people accept the state’s average annual percentage rate (APR) of 450 percent — significantly higher than the APR for pay day loans nationwide.
Pastor Mark, as he prefers to be called, is a widower on disability taking care of his 10-year-old daughter. He’s given up credit cards and pays all his bills with cash. I meet him at Reliable Financial Services, a family-owned pay day lender in downtown Sugar Creek, Mo. to get $250 until his next check hits the bank.
“I only get paid once a month so I need to get a little money to tide me over cuz emergencies come up," he says."They do work though.”
Mark is a first time client at Reliable Financial, and like many payday borrowers, he’ll get a first time, interest-free loan. Mark has every intention of paying back his loan in two weeks, which would make him kind of exceptional.
The Consumer Financial Protection Bureau reports more than a third of borrowers roll over different loans between 11 and 19 times over the course of a year, which the industry depends on to be profitable. If Mark does renew, he’ll pay 17 percent per $100 loaned. That translates into roughly a 443 percent APR.
“I go back," says Pastor Mark. "Your interest rate (is) two, three times what you borrowed. If you didn’t pay it back they’d break you’re arms and blow up your house.”
Critics of payday lending say the modern day equivalent of broken arms and blown up houses is a spiral of debt that causes bankruptcy, loss of property and broken homes.
At a recent screening of the locally produced documentary We Are Superman at Screenland Theater in North Kansas City anout 75 consumer activists came out to support the film which is about blight and revitalization on Troost.
“People are trying to make it and trying get to get to a position where they can actually pay a bill, but they get trapped," says Father Paisius David Altshul. "This isn’t just a legal issue, it’s a moral issue”
The film claims the payday loan industry has sucked $26 million from the Troost corridor with a concentration of storefronts. Also, it documents the industry effort to defeat a 2012 ballot initiative to cap payday loan interest rates at 36 percent, something almost half of states do.
Molly Fleming-Pierre with Communities Creating Opportunities coordinated the ballot initiative campaign in 2012. she claims election shenanigans were responsible for invalidating many of the almost 200,000 signatures the group collected - and defeating the issue.
Missouri ranks 8th in payday loan dollar volume according to the Center for Responsible Lending, and takes in more than $1 billion annually. The lack of a lid on interest rates, says Fleming Pierre, isn’t the only destructive way the industry operates.
“It allows what are called rollovers or renewals—up to 6—but what practically happens is a person not necessarily renewing the same payday loan, they’re getting one next door…or down the street. Having many at a time," she says. "One of the primary reasons we have so many pay day lenders here is it because it IS the Wild West.”
There are no caps on payday loans in neighboring Kansas, and many fewer payday storefronts. I tried repeatedly to get a recorded interview with the largest payday lender in the region, QC Holdings Incorporated, which was vilified for exploiting the poor in the We Are Superman documentary. The communications director and corporate counsel did meet with me in the Overland Park, Kan., head office - but strictly off the record.
QC Holdings is a national, publicly traded company with more stores in Missouri than any other state. The company has taken in over a million dollars since 2004 but says profits are down in spite of overwhelmingly high customer satisfaction. Pay-day lending business is increasingly taking place on-line and QC is joining others in the industry in shifting its business on-line.
If Missouri is a leader in payday profits, it’s also becoming a leader in devising payday lending alternatives. Central Bank of Kansas City on Independence Avenue, is at the heart of an innovative program initiated by Communities Creating Opportunities and others called Fair Community Credit. At the program's core is a longer pay back period.
"These folks would pay back their loans over a longer time frame, whether that be six, 12, 18 or even 24 months,” says Central Bank CEO and President Bill Dana.
Fair Credit loans still carry a 36 percent interest rate, but they’re guaranteed, he says, by a $200,000 fund created by local church groups, foundations, and philanthropies. Another premise of the program is the borrower can’t get a second loan until the first one is repaid.
“We don’t have a renewal process. We have a monthly payment process, so instead of one loan being due in 30 days, they get a practice and pattern of making a monthly amount coming out of their account to make that payment,” sayd Dana.
Fair Credit clients also cannot walk in off the street; they are referred to the program by faith based groups and social service agencies. Dana says the program hasn’t been as successful as they’d hoped. Now, midway through its second year, “charge-offs,” he says, are higher than expected.
QC Holdings and other payday lenders say they’ll go bankrupt with a 36 percent cap on interest rates, and are moving big chunks of their business to less-regulated online lending.
Consumer activists, meanwhile, see payday storefronts staying around, and they’re laying the ground for renewed efforts to limit pay day loans.
Correction: An earlier version of this story indicated that QC Holdings has profits in the hundreds of millions of dollars. The company reports taking in $108.5 million between 2004 and 2012.