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Missouri State Auditor's Office - 2000-

YELLOW SHEET

Office of the State Auditor of Missouri
Claire McCaskill

 

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 ofstate 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)

Complete Audit Report


Missouri State Auditor's Office
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