State Report Shows Persisting Problems with Predatory Lending, MU Expert Says

January 25th, 2011

The views and opinions expressed in this “for expert comment” release are based on research and/or opinions of the researcher(s) and/or faculty member(s) and do not reflect the University’s official stance.

COLUMBIA, Mo. – The Missouri Division of Finance’s 2011 Payday Lender General Assembly Report shows that while the total number of payday lenders in Missouri has fallen nearly 20 percent since 2009 and more than 30 percent since 2007, the average interest rate of each loan has risen to 445 annual percentage rate (APR).  Brenda Procter, a University of Missouri Extension specialist in the College of Human Environmental Sciences and a predatory lending expert, says that these payday loans can be very damaging to a persons’ financial situation.

“National research shows that if a person takes out an initial payday loan, they are likely to take out eight more loans that year, on average; the last eight loans are an attempt to climb out of the hole the first loan created.”

The Missouri Division of Finance report compares the payday lending industry in Missouri to its bordering states. This comparison shows that Missouri has more payday lenders than every surrounding state except Tennessee. It also shows Missouri has less restriction on the interest rates and fees that can be charged than any other bordering state. Procter says this report points to the need for consumer protection and education.

“In this current economy, we must do a better job of protecting consumers who do not know what they are getting into when they take out one of these loans,” Procter said. “People fall into a cycle and they must let basic needs go in order to pay off these loans. It is often a cycle of debt that people will fall in and can’t climb out of.”

Procter and the MU Extension offer several programs to educate Missourians on the issues of predatory lending. One such program, “When Creditors are Predators” informs Missourians about the possible pitfalls with payday loans.

“These Extension programs are not a workshop; they are a process,” Procter said. “We are trying to open a world of alternatives to people who previously believed they had no options. It is all about education.”

Fenny Dorsey used to take out payday loans regularly. She says she has benefited greatly from MU Extension programs.

“I didn’t understand how much money it would cost for me to pay back my first payday loan,” Dorsey said. “At one point I had at least five payday loans at one time and I ended up in a debt cycle that financially destroyed me. MU’s Extension programs have helped me tremendously. They taught me that debt wasn’t my only option and showed me how to start saving money each month.”

Brenda Procter has been a state Extension specialist with a focus on poverty, serving on the MU Personal Financial Planning faculty for 18 years. Procter has worked extensively with low-income families and maintains the Poverty At Issue website, a resource for agencies and educators working with people in poverty.

For more information about MU Extension programs, people may contact their local Extension office or visit http://extension.missouri.edu/cfe/wcap/index.htm