Story by Zachary Lanham.
COLUMBIA — Missouri has the highest average annual percentage rate for interest out of any other state in the nation. Missouri has reached an outstanding 451.91 percent interest rate.
Predatory lending is a giant problem in Missouri, which has the second most lenders with 904 licenses issued. There are twice as many payday vendors than McDonald’s and Starbucks combined in the state of Missouri. Because of this, poverty rates in Columbia and Missouri have long averaged higher statistics then in the United States.
“They are a plague to the community,” said Second Ward Councilman Michael Trapp.
Trapp said he hopes to restore faith back in the community through shared priorities, common sense and an ability to work together.
He believes there is social class inequality in Columbia and payday lenders use low-income individuals to their advantage.
“It should be a crime,” Trapp said.
The average annual percentage rate for Missouri has increased well over 50 percent since 2001 when former auditor Claire McCaskill, now a Missouri senator, uncovered abusive practices by payday lenders.
In response to McCaskill’s findings, the Missouri legislature enacted a set of changes for small loan companies. The changes made back in 2001 permit unlimited interest rates for small loan companies and remains the current law in Missouri.
Poverty rates have also increased because of the growing number of payday loan operations.
Payday loan borrowers become trapped in a “viscous cycle,” former loan manager Marge Walker said.
“It becomes very hard for individuals to escape the cycle of debt,” Walker said.
According to extended poverty research by MU, three-fourths of all payday loans are attributed to re-borrowers. And only 2 percent of borrowers that take out a loan, repay it, and do not come back for a year.
The average income of a payday loan recipient is $24,607, a number that is well below the $40,000 average in Columbia, according to MU’s extension.
Missouri statues allow up to a 1,950 percent interest based on a two-week loan of $100. With that high of an interest level on such a small loan, the actual amount due by the time you pay off your loan would be the same amount as the actual interest rate at $1,950.
“Many low income areas don’t have the money to pay off the high interest rates, but they need the cash quick or they wont survive.” said Central Missouri Community Action director Angela Hirsch.
As annual percentage rates increase, the number of payday lenders has decreased. In 2009, there were 1,275 payday lenders in Missouri. After six years, the number of payday lenders dropped to 904 stores.
Because a borrower has to focus on repaying that loan, it becomes almost impossible to meet greater basic expenses such as health care. With no other option, payday loans become a quick fix to pay off urgent debts.
Councilman Trapp and Walker believe the community needs to become more financially aware to avoid the fiscal disaster of quick loans.
“If we educate the community and have some common sense, we would be able to avoid being caught in the cycle of debt,” Walker said.
Columbia is taking initiative trying to control payday lending. Recently, Missouri Attorney General Chris Koster shut down eight payday lenders for using expensive fees for small loans.
Although the laws in Missouri haven’t changed in 14 years, people are aware of the harmful actions by payday lenders.
“Now it is just up to the government and citizens to become educated to stop this horrible business,” Trapp said.