Columbia City Council looking into new short-term loan regulations

Reducing poverty rates has been a key focus of the city of Columbia’s strategic plan for 2016-2019.

Council members discussed one way to try and reduce poverty rates in a work session Monday night, and it is creating regulations for short-term loan establishments in the city.

City staff noticed that most short-term loan businesses are located near low-income areas, and that there were usually more than one within a mile of that area.

Council members said the biggest issue with payday, title and installment loans is that there aren’t many regulations the businesses have to follow.

Michael Trapp, councilman of Ward 2, said the interest rates associated with the short-term loans are high, often in the fine print and can be deceiving.

“If you have a business product that’s only marketed to your most low-income citizens, it’s worth kind of examining how does that market work,” Trapp said.

According to a payday lender survey report created by the Missouri Department of Finance, the average interest rate for a payday loan in 2016, statewide, was about 463 percent.

While the number of payday loans has steadily decreased since at least 2009, the average loan amount has increased.

Trapp said city staff will do more research before they set a public hearing about the issue, but they are looking into regulations that would limit the number of short-term loan businesses in an area, require businesses to monitor how much and how often they lend money and make lenders pay a fee to the city.

Sean Spence, regional director of the Better Business Bureau, said there is a huge difference between a loan through a bank or credit union and a loan through payday or title lenders. He said the interest rates associated with bank loans are tremendously lower than loans from short-term lenders.

“But, people are less likely to be able to get those loans than at a payday. I could walk in and get a payday loan on my way back to the office today. Going to the bank, there are hoops you have to jump through and you really have to be qualified. Whereas at a payday loan place, all you need is your pay stub or car title or something like that,” Spence said.

Spence said if someone needs to take out a payday loan, they need to read the fine print before signing.