Opponents of payday loans say extremely high interest rates and quick turn-around sink people into a never-ending cycle of debt. Those in favor of the loans say they are providing a necessary service by offering loans to people who otherwise would not have access to them.
An investigative series by reporter Paul Kiel of ProPublica is shedding light on the issue.
"They end up paying more in fees than they originally borrowed," Kiel said, outlying the problem with payday loans. His research has revealed that high-interest loan providers make most of their money from repeated use.
"What they are doing is very profitable," said Kiel. "It' not an easy problem to fix. How do you give credit to someone with bad credit or no credit?"
"But," he added, "you also have to be aware of how vulnerable consumers are being treated."
In Missouri, efforts to cap interest rates through legislation and ballot initiatives have met fierce opposition, resulting in lack of successful reform to date. Kiel outlined the political battles in a recent article published in the St. Louis Post-Dispatch.
Part of the reason payday loan and installment loan companies are focusing so much effort in Missouri, is that neighboring states already have caps and are much less profitable. The average interest rate for a payday loan in Missouri is more than 450 percent. Neighboring Arkansas, by contrast, limits interest rates to 17 percent in the state constitution.
"The thing about this industry is that every state is their own little world," said Kiel. Payday loans began springing up in the 1990s, after a spike in interest rates the previous two decades led to a Supreme Court case that led to a relaxation in laws regulating interest. From there, each state began passing their own laws.
Jim Sahaida was a leader in the 2012 effort to cap interest rates. He is the president of the board of Metropolitan Congregations United, a faith-based coalition in St. Louis that organized petition efforts.
"We didn't want to eliminate the payday loan industry, we just wanted to cap the rate at 36 percent," said Sahaida, adding that they recognized that the industry does meet a need.
Sahaida described the existing payday loan industry as "little more than loan sharks" that preys on the poor. "It's referred to a like a drug addiction," he said. "Once you get in it's nearly impossible to get out."
Among the tactics used by lobbyists representing payday loan and installment loan companies were lawsuits and distributing a rival petition. This decoy petition called for a cap of interest rates at 14 percent rather than 36 percent. But a loophole in the petition would have made the measure ineffective-- companies only needing to get a signed agreement from their customers agreeing to pay a higher rate. The rival petition caused confusion among people signing petitions, who thought they had signed the 36 percent cap measure when in fact they had signed the other one.
Despite the confusion, the group collected the number of petitions needed to put the measure on the ballot, but so many signatures were invalidated that the measure was ultimately stopped, Sahaida said.
"We had 175,000 Missourians sign the petition. We only needed 95,00," Sahaida said. "But because of some particular things that happened, they invalidated signatures that we don't think should have been invalidated locally here in St. Louis City, we failed. But Missourians I don't think are going to stand for this and I think are going to support another petition drive."
Kiel said polls showed that the measure likely would have passed had it made it to the ballot, which was another reason lobbyists were so anxious to ensure it never made it that far.
Starsky Wilson was another St. Louis leader of the ballot initiative. As pastor of St. John's United Church of Christ and President and CEO of the Deaconess Foundation, he was approached by an executive and two lobbyists in an attempt to sway him away from supporting the interest rate cap.
"I didn't feel threatened. I felt condescended to," said Wilson of the meeting. Wilson, like most of his congregation, is African-American. As Kiel reported in a second article published in the St. Louis Post-Dispatch, Wilson's meeting with lobbyists and a loan executive was part of a targeted effort to bring African-Americans to their side.
For Starsky Wilson and his congregation, payday interest rates are personal. Wilson said one member of his church shared a testimony last year about how a payday loan led to her losing her home. Wilson envisions the community as also having a role in combating the lure of payday loans. He spoke of using community to "create a network to allow us access to resources so we don't need these kinds of predatory tools."
Although efforts to cap interest rates in Missouri have so far failed, this is not the end of the story. Sahaida said plans are under way to circle a new petition for the 2014 ballot, despite knowing the process won't be easy. According to Sahaida, the opposition has already collected $500,000 to combat the initiative.