Feature Articles: Loans
Payday loan fact sheet
Brenda Procter, M.S., state specialist & instructor; Andrew M. Zumwalt, M.S., associate state specialist; Lisa Hamilton-Hill, graduate research assistant, Architectural Studies; Suzanne McGarvey, M.S., former extension associate; and Marilyn Preston, doctoral student, extension associate; Personal Financial Planning, College of Human Environmental Sciences, University of Missouri Extension
Payday loans give consumers cash until their next payday. A borrower writes a personal check to the payday lender, who holds the check for a period of 14 to 31 days. At the end of that period, the check is deposited, the borrower returns with cash to reclaim the check, or the loan gets renewed and the borrower pays more fees. Survey results from 2009, 2007 and 2005 are included. The 2009 results include data from Oct. 1 2007 to Sept. 30, 2008. The 2007 results include data from Oct. 1, 2005 to Sept. 30, 2006. The 2005 survey results include data from Oct. 1, 2003 to Sept. 30, 2004. For more information, visit http://missouri-finance.org/.
- In 2006, there were more payday loan stores than McDonald’s restaurants in Missouri (more than 1,200 payday loan stores versus around 300 restaurants).
- The Missouri Division of Finance regulates payday lenders.
- Consumers filed about 2,500 complaints about payday lenders in 2006.
- Payday lenders in Missouri can make loans of up to $500.
- According to the 2009 survey, the average dollar amount of a payday loan in Missouri was $290.29 (increased by about $15 from the previous reporting cycle).
- The 2005 results show the most common amount was $300 (up from $200 the previous reporting cycle). That figure was not released in the 2007 and 2009 results.
- Each time a payday loan is renewed, the borrower must pay off at least 5 percent of the original principal amount of the loan. A loan may not be renewed more than six times.
- A borrower’s ability to repay a payday loan is not considered at the time of application.
- Loan fees can be charged at any interest rate, but the borrower may not pay more than 75 percent of the original loan in interest and fees combined.
- The most frequently occurring annual percentage rate on Missouri payday loans was 391 percent in the 2005 results. That figure was not released in the 2007 and 2009 results.
- The mean average annual percentage rate on a Missouri payday loan was 430.68 percent in the 2009 results.
- The highest annual percentage rate charged by a payday lender was 1,277.54 percent in the 2005 survey. That figure was not released in the 2007 and 2009 results.
- The 2009 results reported about 2,830,000 payday loans were made in Missouri.
- The 2005 results showed that 820 Missouri payday lenders charged an “NSF” or “not sufficient funds” fee. Of those, 226 charged a late fee and seven collected origination fees. Those figures were not released in the 2007 and 2009 results.
- A payday lender can charge the borrower $20 plus the amount of bank charges incurred when a check is returned for not sufficient funds. Giving an NSF check to a payday lender is not illegal unless the borrower stops payment or closes the account.
- In the 2009 survey, lenders reported that borrowers defaulted on about 6.12 percent of the loans.
- Lenders pay a $300 annual fee to operate a payday loan business in Missouri.
- There is a rapidly growing trend in online payday loans. Fees often range from $25 (650 percent APR) to $30 (780 percent) per $100 borrowed.
Fox, Jean Ann & Perini, Anna. Internet payday lending: How high-priced lenders use the internet to mire borrowers in debt and evade state consumer protections, Consumer Federation of America, November 30, 2004, http://consumerfed.org/pdfs/Internet_Payday_Lending113004.PDF.
McDonald’s Corporation, http://mcdonalds.com/.
Missouri attorney general Web site, Opinion No. 98-99, http://ago.mo.gov/opinions/1999/98-99.htm.
Missouri attorney general, attorney general’s news release: Nixon reiterates call for reform in payday loan industry in Missouri after report cites average APR of 422 percent, February 16, 2007, http://ago.mo.gov/newsreleases/2007/021607.htm.
Missouri Division of Finance, Survey of Payday Lenders, Report to the General Assembly, January 17, 2007, http://www.missouri-finance.org/Contribute Documents/2007PaydayLenderSurvey.pdf.
Missouri General Assembly, Missouri Revised Statutes, 408.505, http://www.moga.mo.gov/statutes/c400-499/4080000505.htm.
University of Missouri Extension, Small Business Development Centers Web site, http://www.missouribusiness.net/iag/payday_loan_company.asp.
Last update: Monday, November 02, 2009