YELLOW SHEET Office of the State Auditor of Missouri |
May 9, 2001
Report No. 2001-36
State laws favor instant loan lenders, often leaving loan consumers in
a debt cycle and paying up to three times the loan�s initial value
Current statutes do not limit the interest rates lenders
charge a consumer.� As a result, lenders
commonly charge up to 300 percent interest on a $500 title loan or 391 percent
interest on a $300 payday loan. (See page 3)
This audit reviewed Missouri�s growing instant loan
industry �and the Division of Finance
charged with regulating it.� The aspects
examined included: typical consumer profiles, instances of severe consumer debt
and the adequacy of� state regulation. �
Loan renewals deepen consumer debt
Lenders renew loans 3.5 more times than they make new
loans.� These repeated renewals often
result in the consumer paying additional fees every time they renew. �One customer obtained a $900 title loan and
renewed it three times over three months. �By then, she had paid $902 in interest and fees, but still owed
the $900 loan. (See page 4)
Other states more tightly regulate lenders
Missouri law allows lenders to renew loans up to a year,
set unlimited interest rates and concurrently loan money from various instant
loan operators.� Other states restrict
the number of renewals, cap interest rates and prohibit multiple loans from
different lenders. (See page 5)
Missouri law also does not give the Division of Finance
explicit authority to suspend or revoke the license of a lender who violates
state law and has vague requirements for lender examinations. (See page 17)�
Lenders can choose which law to follow
Lenders can follow one of three state laws, which define
allowable fees, length of term, maximum and minimum amounts, due process and
annual reporting requirements. As a result, lenders are subject to inconsistent
regulation. For example, title and payday lenders do not have to be audited
yearly as do traditional lenders and title lenders do not have
to follow consumer protection provisions. (See page 8)
Consumers unaware of complaint process
Lenders are not required to �inform loan customers that they can call the Division of Finance with a question or complaint about a loan. �When a customer does complain, the finance division only tracks complaints in which a finance division employee noted the results of the investigation.� Complaints that go undocumented cannot be used to track industry activity. (See page 10)