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City Council Voted to Table Payday Loan Ordinances Again. Here’s Why That’s a Tricky Debate.

City of Springfield

 

Springfield City Council voted to table discussion of ordinances that would make it more challenging for owners of short-term loan businesses. As it stands, the payday loan issue won’t be discussed again until February.

The issue of regulating payday and title loans is a delicate one.

The issue is contentious for many states and municipalities because it’s a conflict that tries to balance the freedom of business owners and the protection of a vulnerable population.

In June,  Springfield City Council debated whether to crack down on short-term lenders—but it ended up postponing the discussion until this fall.

Last week, Council voted to table the discussion again, this time until its meeting on February 10, 2020.

Short-term lending businesses offer payday or title loans, often with very high interest rates and harsh penalties for missing payments. Critics say this is immoral and feel the businesses prey on low-income people, perpetuating the cycle of poverty.

Councilwoman Phyllis Ferguson raised the motion to table the discussion, saying Council is limited in its options to deal with these loan businesses.

“One of the things that’s come forward is to place a $5,000 tax of sorts on short-term loan companies. I have not been comfortable with that,” Ferguson said during the October 21 Council meeting.

Instead of a special tax for these businesses, Ferguson wants a taskforce to investigate the situation. She argued that a new tax or fee would cause title and payday lenders to pass the cost of the tax onto those receiving loans.

But Councilman Mike Schilling disagreed.

“I’ve checked with Kansas City and St. Louis, where this similar kind of ordinance is in effect, and they have no evidence that anything has been skyrocketed from the fees they charge,” Schilling rebutted.

Schilling added that the Missouri legislature has not placed any caps on the interest rates these businesses can charge customers like Arkansas has. The interest rates of some short term loans can be 400 or 500 percent. At last week’s Council meeting, Schilling said this is problematic.

“This is basically what we have in Missouri now, is a license for larceny. Predatory lending. So I want to try and move forward with this and try to get it out to the voters to vote upon,” Schilling said.

James Philpot is associate professor of finance at Missouri State University. He says regulating short-term lending businesses is challenging because there’s already a litany of legislation policing the practices of payday and title loan companies.

He says the demand for short-term lending probably won’t go away if more lending companies go out of business.

“I doubt that’s going to change people’s need for short-term credit, and so we’ll see them going instead to alternative sources of short-term financing that aren’t regulated the same way as these lenders,” Philpot told KSMU.

Borrowers might instead turn to lenders like pawn shops, banks with overdraft protections, and even loan sharks, he said.  Philpot added that the regulation of short-term lenders is an emotional issue to many.

“The very, very long-term solution to this problem is going to be better financial literacy, better financial education of consumers," he said.

Five councilmembers voted to table the issue, including Ferguson and Mayor Ken McClure.

According to US Census data, about 25% of the population in Springfield lives in poverty.  

 

Josh Conaway is a graduate of Missouri State University with a B.A. in Political Science and an M.A. in International Affairs. He works as a news reporter and announcer at KSMU. His favorite part of the job is exploring the rich diversity of the Ozarks and meeting people with interesting stories to share. He has a passion for history and running.