"They're someone who perhaps from through poor budgeting, through poor just circumstances, had something come up, and they don't have enough cash to make it to the next cycle," said James Philpot, an associate professor of Finance at Missouri State University. "So they need to get some sort of advance."
Payday loans allow customers to borrow against their pending paychecks. Philpot said rolling over loans multiple times can put people in a cycle of debt.
"It's somewhat of doubling down at the casino when you lose the wager," he said. "In theory, yeah it works fine, but practice you don't always claw your way out."
According to the Missouri Division of Finance, the average interest rate for a payday loan in the state is 450-percent, higher than the national average of 391-percent.
Under current state law, these short-term loans can be up to $500 and can last 14 to 31 days. The interest rate is capped at 75-percent, and the loan can be rolled over six times. Senate Bill 694 would put an end to this.
"The main thing the bill does is it helps eliminate the cycle of debt, which means it prohibits loan renewals, rollovers, and loans. No new loans can be placed on the books until this loan is completely paid off," said State Sen. Mike Cunningham who is sponsoring SB 694. "They cannot pay back more than 35-percent of original amount borrowed.
A provision in the bill would give borrowers more time to pay back a loan, which they could opt into once a year.
"It has an extended payment plan that allows free, no interest, no fees for four check periods," said Cunningham.
But opponents said the problem lies in the short-term loan industry, itself.
"The business model for the payday loan industry is one that intentionally traps borrowers in this cycle of debt-- that's how they make their money," said Barbara Paulus from Metropolitan Congregations United in St. Louis.
Paulus said the bill would do more harm than good.
"Even though this current bill would outlaw rollovers, nothing would prevent a borrow from simply taking out a back to back loan," she said.
Joe Allen Stokes of Consumer Credit Counseling of Springfield helps to develop repayment plans for clients who have accumulated debt.
"The problem they get themselves into is they start renewing multiple times and then get multiple payday loans at the same time-- they're just that much farther behind," said Stokes. "It gets to point where it gets so compounded that they can't ever catch up."
Stokes said it's not easy working with payday loan companies.
"Whatever the amount is, that's what you work with," he said. "We hardly get any concessions from payday loan companies. That's just not their business."
He said he supports the bill, but worries where that will leave those who need the money the most.
"Realistically, some of these families are in such dire conditions, they don't have a lot to turn to," said Stokes.
Consumer Credit Counseling offers its services free of charge to the community.
Stokes said for those who may be in debt due to payday loans, one way to look for money is to examine your personal expenses to see where you can eliminate certain personal habits and unnecessary spending. He said this could amount to significant savings and more money in your pocketbook.
Passage of the SB 694 would also increase the annual license fee for lenders from $300 to $500.
The bill is set to go to the House for a third read.
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